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Fed Ends Its Purchasing of Mortgage Securities

March 31, 2010 By 1 Comment

Sewell Chan, NY Times

The Federal Reserve’s single largest intervention to prop up the American economy, its $1.25 trillion program to buy mortgage-backed securities, came to a long-anticipated end on Wednesday.

The program has been credited with holding mortgage interest rates at near-record lows and slowing the nationwide decline in home prices that threatened to send the economy into an extended slump.

When the central bank announced the program two days before Thanksgiving 2008, the spread, or difference, between the rates for a 30-year fixed-rate mortgage and a 10-year Treasury note exceeded 2.5 percentage points, or 250 basis points, nearly twice the typical spread.

Demand for mortgage bonds had been frozen since the federal takeover of Fannie Mae and Freddie Mac, the giant mortgage-finance companies, in September 2008. “We were in a deflationary spiral, causing mortgages to go underwater, more foreclosures and a further decline in housing prices,” said Susan M. Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. “The potential maelstrom of destruction was out there, bringing down not only the housing market but the overall economy. That’s what was stopped.”

She called the Fed’s mortgage purchases “the single most important move to stabilize the economy and to prevent a debacle.”

The program was initially for $500 billion. The purchases began in January 2009, and in March, the Fed raised the goal to $1.25 trillion. The purchases were to end by Dec. 31, but in September, the Fed said the purchases would taper off more slowly, ending on March 31.

The purchases caused rates for 30-year mortgages, which exceeded 6 percent in late 2008, to fall to below 5 percent by March 2009. They are hovering slightly above 5 percent today.

Economists had feared that mortgage interest rates would climb sharply after the 15-month program, but those fears have abated in recent weeks. Fed policy makers have suggested that they would consider resuming the purchases if conditions warranted it, but only as a last resort.

Read more here: http://www.nytimes.com/2010/04/01/business/01fed.html?src=twt&twt=nytimesbusiness

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Bank forecloses On LI Woman Then Tries To Run Her Out of Town

March 31, 2010 By 1 Comment

Nina Pineda, WABC-New York

She’s an architect who’s helped build scores of homes. But now – the struggling businesswoman is trying to save her own house from foreclosure after she says her bank tried to literally run her out of town – that is until 7 on your side stepped in.

“It’s ridiculous. It’s gotten me ill.” Amagansett homeowner, Eva Growney’s talking about foreclosure notices she’s been receiveing since last year from her mortgage company, Chase.

“It’s exasperating. The phone rings all the time because I’m always getting threatening phone calls,” the Hampton’s homeowner.

At issue? Two mortgage payments, one from last April, the other from August totaling more than $4,890. Chase says they’re both owed. But Eva and her business partner, Michael O’Sullivan, say both were paid months ago, when they were originally due.

“We have our receipts that we paid the mortgages,” says Michael. “This is not like we made up a story. All they had to do was see it, correct it.”

Now, the East Hampton’s architect that designed such elaborate homes is desperately trying to save her own house and her credit rating.

“She’s a single woman trying to make it,” Michael says about his partner. “You need credit. So they’ve destroyed her credit.”

Read more here: http://abclocal.go.com/wabc/story?section=news/7_on_your_side&id=7356814

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Filed Under: Mortgage News, New York

Bank Lobbyists Fought For Very Thing They Now Want To Kill, Says Elizabeth Warren

March 30, 2010 By 1 Comment

Shahien Nasiripour, Huffington Post

Bank lobbyists are fighting to derail a key element of consumer protection which they fought to preserve just four years ago, threatening to kill financial reform and harm the families that would be protected by it, argues bailout watchdog Elizabeth Warren in a forceful opinion piece published Tuesday.

“Banks or families?” Warren, a Harvard Law professor and chair of the TARP Congressional Oversight Panel, asks rhetorically in an op-ed in Politico. “For almost a year, the big banks and the American Bankers Association (ABA) have presented that choice to Congress. Lobbyists argue that meaningful consumer protection will jeopardize the safety and soundness of banks, telling lawmakers that they must decide between the two.”

Indeed, bankers and federal bank regulators — with the exception of Federal Deposit Insurance Corp. Chairman Sheila Bair — argue that shifting consumer protection to a new agency, solely charged with protecting borrowers from abusive lenders, would irreparably hurt the nation’s banks. Their argument is that by protecting consumers from particular products the new agency could have a detrimental effect on bank profitability, hurting the very lenders whose health is key to the economic recovery, according to bankers and their allies.

“ABA lobbyists now aggressively insist that separating consumer protection and safety and soundness functions would unravel bank stability,” Warren writes. “Yet just a few years ago, they heatedly argued the opposite–that the functions should be distinct.

Read more here: http://www.huffingtonpost.com/2010/03/30/bank-lobbyists-fought-for_n_517982.html

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Volker: Failing US banks must fear government closure

March 30, 2010 By 1 Comment

WASHINGTON (AFP) – Failing US financial institutions must face the credible threat of government closure if reforms are to succeed, a key adviser to President Barack Obama said Tuesday.

Paul Volcker, a former Federal Reserve chairman, said reforms being discussed by Congress hit on the “essential elements” of financial reform, but that a strong government arbitrator must emerge with the power to wind down firms.

“There is a clear need for a so-called resolution authority,” Volcker told members of the Peterson Institute for International Economics, a Washington-based think tank.

Volcker said that massive government bailouts of a host of banks and insurance giant AIG over the past two years must not be allowed to convince others they can expect a government safety net, and so encourage risky practices, creating a so-called “moral hazard.”

He said the multibillion-dollar government bailouts raised the problem of “moral hazard writ large.”
While he said the government should have the power to step in to bolster firms if needed, “ultimately the failing firm should be liquidated or merged. In all… it is a death sentence, not a rescue at the hospital.”

Obama has pushed Congress to pass sweeping reforms of the financial sector, as he taps into public anger at the role banks played in spurring the worst recession in a generation.

Volcker has been at the forefront of Obama’s efforts, heading an influential economic recovery panel.
The former Fed chairman has advocated stopping banks from holding customers’ deposits at the same time as making investments for their own gain — so-called proprietary trading.

Curbs on “prop trading” had been in effect since the Great Depression. In 1933 Glass-Steagall Act prohibited commercial banks from underwriting corporate securities, or acting as brokerages.

But the rules were overturned in 1999, during the administration of president Bill Clinton.

In January Obama backed the “Volcker rule” against proprietary trading as “a simple and common-sense reform.”

Volcker, an octogenarian who headed the Fed from 1979 to 1987, supported Obama during his Democratic bid for the presidency and subsequently was tapped to head the President’s Economic Recovery Advisory Board, an independent, nonpartisan body created to tackle the worst recession in decades.

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