Mortgage Rate News

It seems a little counter-intuitive that the government insurance agency would take over a failed bank and then continue its practices. But that’s just what the FDIC did back in 2001 when it took over Superior Bank FSB. As new information comes to light about the mortgage market crash, there are questions about the way the FDIC runs the banks it takes over. Instead of cleaning up some of the subprime mortgage lending practices, the FDIC continued on with Superior’s policy of approving subprime loans to homebuyers — some of which were obviously unqualified.

When the FDIC takes over a bank

When the FDIC takes over a bank, it basically operates the bank until it can find a buyer. The FDIC manages the day to day banking transactions, and allows people to withdraw their money from the bank if they wish. Indeed, IndyMac is a prime example of what happens when the FDIC takes over a bank. Most operations are moving forward, including the acquisition of some of the real estate and mortgage sections by Prospect Mortgage.

The problem is that sometimes it can take months to find a buyer. With Superior, the FDIC decided to keep on providing loans to homebuyers. Unfortunately, the FDIC decided to follow the trend back in 2001, rather than evaluating the lending practices. As a result, quite a few of the foreclosures we are seeing with the current mortgage market mess were given by the government — using some of the same shoddy (and even predatory in some cases) lending practices that caused the downfall of the housing market.

One hopes that everyone can learn from the current mortgage mess: lenders, government regulators and homebuyers alike. But until then, one hopes that we don’t receive any more revelations like those regarding the FDIC’s subprime mortgage lending practices.

Tags: subprime mortgage, FDIC, home mortgage loan, mortgage loan blog,
subprime mortgage, IndyMac

Citigroup Inc. got its fair share of hits, thanks to the mortgage market and credit market messes. Subprime mortgage writedowns, as well as other credit related writedowns, totaled more than $7 billion. So for quarterly earnings, Citi is reporting a $2.5 billion loss.

And this is good news.

New stock market conventional wisdom: “not that bad” is the new “good”

The news of Citi’s loss of “only” $2.5 billion is having a rather positive effect on the stock market. All around the world, stock exchanges are getting a bit of a boost as they contemplate the fact that Citi didn’t lose as much as analysts forecast the company to lose.

When mortgage lenders and others who deal with borrowers first started sustaining heavy losses as the mortgage and credit markets imploded, all sorts of dire warnings were made and all sorts of losses predicted. As a result of all the gloom and doom, snything that comes up “better than expected” or “not that bad” is considered a victory for that stock. And the stock market derives “confidence” that the worst of the crisis might be over. (Forgetting that this same thing happened last quarter, and things got worse.)

But, in the end, Citi needs to actually start making money. Posting gains and what-not. So BloggingStocks reports on the plans Citi has to do that thing the company was started for in the first place:

What will Citi do to start making money? It plans to cut $15 billion in costs in the next two to three years– It canned 6,000 people in the quarter — it will sell $400 billion in what CEO Vikram Pandit calls “legacy assets” and it will strive for 9% revenue growth.

Meanwhile, Citi has had some luck strengthening its capital base. It raised $13 billion in common and preferred stock during the second quarter which left it with a strong capital position — a Tier 1 capital ratio of 8.7% — well above its 7.5% target.

Tags: credit market, writedowns, home mortgage loan, mortgage loan blog,
subprime mortgage, subprime writedowns, loss Citi

There has been plenty of partisan wrangling over the housing relief bill currently making its way sluggishly through Congress. And there has been disputes between Congress and the White House. Now, though, a solution may have been found. Fannie Mae and Freddie Mac may actually get the housing relief bill through weeks ahead of when it could reasonably be expected otherwise. The Los Angeles Times reports on how the recent debacle with Fannie and Freddie may influence the housing relief bill:

The mortgage initiative unveiled Sunday by the Treasury Department and the Federal Reserve — which is designed to bolster confidence in home-loan giants Fannie Mae and Freddie Mac — requires approval by Congress. To expedite the legislative process, it is being attached to the larger housing bill as an amendment.

And, since no one wants to be accused of holding up the Fannie-Freddie package, differences are being swept aside over the larger measure to help some homeowners threatened by foreclosure.

In an election year, with the economy and the US financial system practically in ruin, nobody wants to hold this up. The collapse of liquidity for Fannie Mae and Freddie Mac could bring about the complete dissolution of the mortgage industry — that’s how influential the two government chartered institutions are. And how much money goes through them.

Besides, after Ben Bernanke’s testimony before Congress this morning, legislators are probably chomping at the bit to do something that they can claim will set the economy on the road to recovery. Bernanke gave is most pessimistic speech yet, turning directly from his optimistic statements weeks ago that the worst was over for the US economy. Now he’s all about uncertainty and expressing worries that there are hurdles he didn’t foresee to economic recovery.

Tags: Ben Bernanke, Housing Relief Bill, home mortgage loan, Fannie Mae,
Freddie Mac, mortgage loan blog, economy