U.S. taxpayers already own pieces of such problem-plagued companies as General Motors Corp., Chrysler LLC, American International Group Inc. (NYSE: AIG), Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC). Now the increasingly problematic "Mortgagegate" saga could land American taxpayers in the trouble-ridden title-insurance business.
On Oct. 8, Bank of America Corp. (NYSE: BAC) indemnified Fidelity National Financial Inc. (NYSE: FNF) against any losses that Fidelity might sustain in litigation over title insurance it writes on foreclosed homes - the same homes, coincidentally, that Bank of America wants to sell to new buyers.
This arrangement amounts to U.S. taxpayers, who are the ultimate backers of the Federal Deposit Insurance Corp. (FDIC), backstopping a giant, publicly held title-insurance company, which is backstopping a huge commercial bank, so that the bank can sell properties that it might not have proper title to.
It sounds like a Wall Street version of the "Six Degrees of Kevin Bacon," but it's no game - it's a daisy-chain scheme that once again sets American households up as the biggest losers.
Home Mortgage Market
Article Index
The "Mortgagegate" Scandal: Congratulations America, You're Now in the Title-Insurance Business
To understand the latest "Mortgagegate" developments - and see the steps to take - please read on...
Question of the Week: Mortgagegate Makes Investors Wary of U.S. Banking Industry
A potentially crippling crisis is flashing through the banking industry and threatening to derail the already struggling housing market and U.S. economic recovery.
But Gilani said the headlines aren't telling the full story.
Dubbed "Mortgagegate" - a nod to the earlier scandal-ridden crisis touched off by Watergate - this latest crisis involves such big lenders as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and GMAC LLC (NYSE: GMA), which are alleged to have conducted negligent foreclosure practices.
Money Morning Contributing Editor Shah Gilani warned about the allegedly fraudulent business practices employed by lenders and their hired "robo-signers" that led to thousands of questionably reviewed foreclosure documents.
But Gilani said the headlines aren't telling the full story.
Dubbed "Mortgagegate" - a nod to the earlier scandal-ridden crisis touched off by Watergate - this latest crisis involves such big lenders as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and GMAC LLC (NYSE: GMA), which are alleged to have conducted negligent foreclosure practices.
Money Morning Contributing Editor Shah Gilani warned about the allegedly fraudulent business practices employed by lenders and their hired "robo-signers" that led to thousands of questionably reviewed foreclosure documents.
We Want to Hear From You: Will "Mortgagegate" Affect You?
A potentially crippling crisis is flashing through the banking industry and threatening to derail the already struggling housing market and U.S. economic recovery.
Dubbed "Mortgagegate" - a nod to the earlier scandal-ridden crisis touched off by Watergate - this latest crisis involves such big lenders as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and GMAC LLC (NYSE: GMA), which are alleged to have conducted negligent foreclosure practices.
Money Morning Contributing Editor Shah Gilani reported last week about the allegedly fraudulent business practices employed by lenders and their hired "robo-signers" that led to thousands of questionably reviewed foreclosure documents.
But Gilani warned that the headlines aren't telling the full story.
Dubbed "Mortgagegate" - a nod to the earlier scandal-ridden crisis touched off by Watergate - this latest crisis involves such big lenders as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and GMAC LLC (NYSE: GMA), which are alleged to have conducted negligent foreclosure practices. Money Morning Contributing Editor Shah Gilani reported last week about the allegedly fraudulent business practices employed by lenders and their hired "robo-signers" that led to thousands of questionably reviewed foreclosure documents.
But Gilani warned that the headlines aren't telling the full story.
What You Don't Know about "Mortgagegate" Could Crush the U.S. Banking System
What most Americans don't know about " Mortgagegate" is that "robo-signing" of foreclosure documents is the tip of the iceberg.
The breadth and depth of this newest mortgage crisis is so dangerous that the U.S. Federal Reserve last month pre-announced another potential round of quantitative easing (pundits are calling it "QE2") to address "potential negative shocks."
In fact, the fallout potential is so numbing and the actions that birthed it so scandalous that commentators have given the crisis the Watergate-esque title of " Mortgagegate" (or, as some prefer, "Mortgage Gate").
Here's what the news-story headlines aren't telling you.
The breadth and depth of this newest mortgage crisis is so dangerous that the U.S. Federal Reserve last month pre-announced another potential round of quantitative easing (pundits are calling it "QE2") to address "potential negative shocks."
In fact, the fallout potential is so numbing and the actions that birthed it so scandalous that commentators have given the crisis the Watergate-esque title of " Mortgagegate" (or, as some prefer, "Mortgage Gate").
Here's what the news-story headlines aren't telling you.
For an investment strategy that will protect your portfolio from "Mortgagegate," please read on...
Foreclosures Continue to Stymie Housing Recovery
Banks seized more homes in August than in any month since the housing bubble burst in 2007, even as the number of homes entering the foreclosure process dropped for the seventh month in a row, according to data compiled by RealtyTrac Inc.
In all, banks repossessed 95,364 properties last month, up 3% from July and an increase of 25% from August 2009, RealtyTrac said. August was the ninth month in a row that the rate of homes seized by banks increased on an annual basis. The previous high was in May.
Additionally, almost one-quarter of all U.S. home closing transactions involved properties that were in some stage of mortgage distress and sold at a 26% discount on average in the second quarter.
In all, banks repossessed 95,364 properties last month, up 3% from July and an increase of 25% from August 2009, RealtyTrac said. August was the ninth month in a row that the rate of homes seized by banks increased on an annual basis. The previous high was in May.
Additionally, almost one-quarter of all U.S. home closing transactions involved properties that were in some stage of mortgage distress and sold at a 26% discount on average in the second quarter.
Moribund Housing Market Threatens to Kill Economic Recovery
The weak housing market, which has traditionally led the U.S. economy out of recent recessions, this time may put an end to the economic recovery.
Existing home sales plummeted by a record 27% to their lowest level in 15 years in July and inventories soared, the National Association of Realtors (NAR) reported yesterday (Tuesday). Home re-sales, which account for 90% of the total market, dropped to an annual rate of 3.83 million in July. And inventories rose to 12.5 months from 8.9 months in June, putting them at their highest level in more than a decade.
"Historically, July is the peak inventory month in any given year," NAR Chief Economist Lawrence Yun told The Wall Street Journal. "The question is whether this pause is a temporary pause."
Existing home sales plummeted by a record 27% to their lowest level in 15 years in July and inventories soared, the National Association of Realtors (NAR) reported yesterday (Tuesday). Home re-sales, which account for 90% of the total market, dropped to an annual rate of 3.83 million in July. And inventories rose to 12.5 months from 8.9 months in June, putting them at their highest level in more than a decade.
"Historically, July is the peak inventory month in any given year," NAR Chief Economist Lawrence Yun told The Wall Street Journal. "The question is whether this pause is a temporary pause."
A Helpless Housing Market Keeps Fannie and Freddie in Limbo
Mortgage-industry industry leaders will attend a summit with government officials today (Tuesday) to discuss how to reform Fannie Mae (NYSE: FNMA) and Freddie Mac (OTC: FMCC), the two mortgage giants that so far have devoured close to $150 billion in taxpayer bailout funds.
However, that meeting is likely to be derailed by a far greater problem: After making modest progress, the housing market again appears on the verge of collapse.
"There's been a feeling in government, which seems to be more pervasive than it was six months ago, that says, 'We've solved this housing problem; let's move on to Fannie and Freddie,'" Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York told The Wall Street Journal. "But you haven't solved this housing problem. We have another round of home prices going down a little more."
However, that meeting is likely to be derailed by a far greater problem: After making modest progress, the housing market again appears on the verge of collapse.
"There's been a feeling in government, which seems to be more pervasive than it was six months ago, that says, 'We've solved this housing problem; let's move on to Fannie and Freddie,'" Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York told The Wall Street Journal. "But you haven't solved this housing problem. We have another round of home prices going down a little more."
The Housing Market Still Wobbly Despite May's Home Price Improvement
The S&P/Case-Shiller index of home prices increased more than forecast in May, but the combination of a now-expired government tax credit, skyrocketing foreclosures and deteriorating consumer confidence is expected to keep a lid on the housing market in the second half of 2010.
Home prices in 20 major U.S. cities climbed 4.6% from May 2009, the biggest year-over-year gain since August 2006. However, analysts say the increase was artificially buttressed by seasonal factors and the residual impact of the homebuyers' tax credit.
"While May's report on its own looks somewhat positive, a broader look at home price levels over the past year" doesn't show that the housing market "is in any form of sustained recovery," David M. Blitzer, chairman of S&P's index committee told The Wall Street Journal. "Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level."
Home prices in 20 major U.S. cities climbed 4.6% from May 2009, the biggest year-over-year gain since August 2006. However, analysts say the increase was artificially buttressed by seasonal factors and the residual impact of the homebuyers' tax credit.
"While May's report on its own looks somewhat positive, a broader look at home price levels over the past year" doesn't show that the housing market "is in any form of sustained recovery," David M. Blitzer, chairman of S&P's index committee told The Wall Street Journal. "Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level."
Taxpayers' $3.7 Trillion Bailout Hasn't Saved the U.S. Housing Market
The amount of taxpayer dollars directed at the Troubled Asset Relief Program (TARP) continues to grow but with little economic progress being made, particularly in the housing market.
Total taxpayer support for the mortgage market rose by $700 billion in the past year to $3.7 trillion, Neil Barofsky, the Special Inspector General for TARP, said his quarterly report to Congress.
"Indeed, the current outstanding balance of overall Federal support for the nation's financial system...has actually increased more than 23% over the past year...the equivalent of a fully deployed TARP program - largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases," said Barofsky.
Total taxpayer support for the mortgage market rose by $700 billion in the past year to $3.7 trillion, Neil Barofsky, the Special Inspector General for TARP, said his quarterly report to Congress.
"Indeed, the current outstanding balance of overall Federal support for the nation's financial system...has actually increased more than 23% over the past year...the equivalent of a fully deployed TARP program - largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases," said Barofsky.
Housing Market Wobbling without Tax Credit Crutch
The housing market has struggled to rebuild since its 2007 collapse, and its recovery is on even shakier ground now that a tax credit for first-time homebuyers has expired.
Nearly one-third of all U.S. home sales in the first quarter involved properties that were in some stage of mortgage distress, according to RealtyTrac Inc.. And homes on the market that were in the process of foreclosure sold at an average discount of 27% in the first quarter, which does not bode well for new inventory coming onto the market.
"We're clearly creating more properties that will be sold at distressed prices than the market is absorbing," Rick Sharga, RealtyTrac's senior vice president for marketing, told Bloomberg News in an interview. "The discount will probably stay between 25% and 30% as lenders carefully manage the number of new foreclosure actions in order to avoid flooding the market."
Nearly one-third of all U.S. home sales in the first quarter involved properties that were in some stage of mortgage distress, according to RealtyTrac Inc.. And homes on the market that were in the process of foreclosure sold at an average discount of 27% in the first quarter, which does not bode well for new inventory coming onto the market.
"We're clearly creating more properties that will be sold at distressed prices than the market is absorbing," Rick Sharga, RealtyTrac's senior vice president for marketing, told Bloomberg News in an interview. "The discount will probably stay between 25% and 30% as lenders carefully manage the number of new foreclosure actions in order to avoid flooding the market."
Are You Worried About Stocks? The U.S. Housing Market Should Be Your Real Concern
According to the latest reports on the U.S. housing market, the 96,400 homes hit with default notices last month were 7% less than in April and 22% less than in May 2009.
And that's not all. Foreclosure auctions were scheduled for the first time on 132,680 properties last month - 4% fewer than the month before and 16% fewer than in May a year ago, according to the Irvine, California-based RealtyTrac Inc.
In fact, foreclosure filings of all types - default notices, scheduled auctions and bank repossessions - were reported on 322,920 U.S. properties in May, a decline of 3%. All told, this latest report seems to have painted a picture of a gentle and steady recovery for the embattled U.S. housing market.
Unfortunately, these figures are quite deceptive - as is the reassuring portrait they helped create. Despite the apparent improvement in the foreclosure figures, there exist some dangerous undercurrents that threaten to further drag down U.S. housing prices - as well as U.S. investors.
To discover the "real" state of the U.S. housing market, read on...
And that's not all. Foreclosure auctions were scheduled for the first time on 132,680 properties last month - 4% fewer than the month before and 16% fewer than in May a year ago, according to the Irvine, California-based RealtyTrac Inc.
In fact, foreclosure filings of all types - default notices, scheduled auctions and bank repossessions - were reported on 322,920 U.S. properties in May, a decline of 3%. All told, this latest report seems to have painted a picture of a gentle and steady recovery for the embattled U.S. housing market.
Unfortunately, these figures are quite deceptive - as is the reassuring portrait they helped create. Despite the apparent improvement in the foreclosure figures, there exist some dangerous undercurrents that threaten to further drag down U.S. housing prices - as well as U.S. investors.
To discover the "real" state of the U.S. housing market, read on...
Cost to Fix Fannie Mae and Freddie Mac May Reach $1 Trillion
The cost to fix Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government-backed mortgage companies that bought or guaranteed three-quarters of all U.S. home loans last year, could run as high as $1 trillion, according to a report by Bloomberg News released yesterday (Tuesday).
The minimum amount required to keep them afloat will be $160 billion, or $15 billion more than they have already drawn from an unlimited line of government credit granted to keep the home mortgage market functioning. That exceeds the amount already spent on bailouts for American International Group Inc. (NYSE: AIG), General Motors Co. or Citigroup Inc. (NYSE: C).
"It is the mother of all bailouts," Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry told Bloomberg.
Fannie and Freddie own or guarantee 53% of the nation's $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Their books are loaded with millions of bad loans, and delinquencies are on the rise.
The minimum amount required to keep them afloat will be $160 billion, or $15 billion more than they have already drawn from an unlimited line of government credit granted to keep the home mortgage market functioning. That exceeds the amount already spent on bailouts for American International Group Inc. (NYSE: AIG), General Motors Co. or Citigroup Inc. (NYSE: C).
"It is the mother of all bailouts," Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry told Bloomberg.
Fannie and Freddie own or guarantee 53% of the nation's $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Their books are loaded with millions of bad loans, and delinquencies are on the rise.
Question of the Week: Readers Respond to Money Morning's U.S. Housing Market Query
On one hand, housing market reports released last month showed that prices and sales are up from a year ago. The Standard & Poor's Case-Shiller Home Price Index showed a 2.3% year-over-year increase in March prices. And the National Association of Realtors said sales of previously owned homes rose 7.6% from March to April - a five-month high - and were up 22.8% from April 2009.
"A majority of the markets have seen price gains recently," said Lawrence Yun, chief economist at the National Association of Realtors. "A return to old-fashioned responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles."
"A majority of the markets have seen price gains recently," said Lawrence Yun, chief economist at the National Association of Realtors. "A return to old-fashioned responsible lending and buying will help the housing market avoid disruptive and painful bubble-bust cycles."
We Want to Hear From You: How Do You Feel About the U.S. Housing Market?
Housing market reports released last week showed that prices and sales are up from a year ago. The Standard & Poor's Case-Shiller Home Price Index showed a 2.3% increase in prices for March on a year-over-year basis, and the National Association of Realtors said sales of previously owned homes rose 7.6% from March to April - a five-month high - and were up 22.8% from April 2009.
The median existing single-family home price was $173,400 in April, up 4.5% from a year ago.
Government-incentive programs offering tax credits to buyers have helped bolster the U.S. housing market in recent months. First time homebuyers were eligible for an $8,000 tax credit if they signed a contract by April 30.
The median existing single-family home price was $173,400 in April, up 4.5% from a year ago.
Government-incentive programs offering tax credits to buyers have helped bolster the U.S. housing market in recent months. First time homebuyers were eligible for an $8,000 tax credit if they signed a contract by April 30.
Money Morning Mailbag: Are We Headed for Over-Regulation?
As U.S. financial reform continues to be the focus of controversy and debate throughout the nation, it seems as if the same questions arise again and again: How much regulation is necessary to create a fair market? What can we learn from our previous banking policies? What does the future hold for lenders, borrowers and […]