Posts Tagged: bailout

Name that loan modification program: government must do more to market mortgage aid

Four years after the housing bubble burst, all levels of government are getting their bearings in addressing the foreclosure crisis. A mix of programs are either being started or revived that might actually address specific payment problems homeowners face.

Illinois announced on Friday that it will use $100 million in federal money to start a Mortgage Resolution Fund, where a public-private partnership will buy “underwater mortgages” — those where delinquent payments are worth more than the mortgage itself — from homeowners in the Chicago area. (more…)

Looks like FDIC is in ShoreBank’s future

Chicago-based ShoreBank may be a goner after it lost at its attempt to get $75 million of Treasury Dept. TARP money. James Sterngold and Robert Schmidt of Bloomberg News explain that the bank applied to a TARP bailout program for community banks that invest in poor areas. Indeed, the case for saving ShoreBank revolved around its investment in Chicago’s South Side as well as (more…)

Drifting away from shore

ShoreBank, a community lender on Chicago’s South Side, is in bigger trouble than first thought – and the Obama administration may now let the bank fail.  The Chicago Tribune’s Becky Yerak reports that ShoreBank must raise at least $190 million in order to qualify for a $75 million Treasury Dept. TARP loan. Banking regulators arrived at the $190 million number after an awful 2nd quarter for the lender. Previously, the Treasury Dept. estimated that ShoreBank needed to come up with (more…)

Is There Still Time For a Homeowner’s Bailout?

Here’s an interesting bit from a New York Timeseditorial today critical of Barack Obama’s home foreclosure prevention policies:

The administration’s $75 billion antiforeclosure program, which subsidizes lenders to rework bad loans, has been a big disappointment. One reason is that its usual method of modifying loans — lowering the monthly payment by reducing the interest rate — does not work well for jobless and underwater borrowers. Unemployed homeowners often cannot make even reduced payments and underwater borrowers need principal reductions to succeed over the long run, not lower rates.

And yet, the administration has resisted calls to revamp its program, citing cost and complexity.

But the home foreclosure prevention plan would seem to be the rare instance of a recession-relief program unencumbered by limited funding. Money for the program comes from the Troubled Asset Relief Program — which has hundreds of billions of dollars in either unspent money or money that bailed out banks returned with interest. The Obama administration has announced a $1.5 billion extension to the original $75 billion foreclosure prevention program. Given the criticism of the program and the suspicion that TARP has only helped Wall Street, the administration should announce a more dramatic — and expensive — plan to keep people from losing their homes.

Tell Me What To Think About New Fees On Banks

The Washington Post’s Michael Shear and Binyamin Appelbaum report that the Obama administration is considering to insert a one-time fee on bailed out banks as part of its proposed 2010 budget. President Obama has a Feb. 1 deadline to send the new budget to Congress. An inclusion of banking fees make sense politically: it demonstrates that the administration is “tough” on Wall Street and also wants to raise revenues to pay off the national debt.

The merits of the policy, though, make less sense. (more…)

Roll Call: The Companies Who Still Receive TARP Cash

The Washington Post’s Binyamin Applebaum reports on the Treasury Department’s increased investment in auto financier GMAC: Treasury added $3.8 billion to the $12.5 billion in aid they’ve already provided GMAC. In turn, the federal government now owns a majority stake, 56 percent, of the company.

Appelbaum gives the scorecard of what financial firms still get money from Treasury’s Troubled Asset Relief Program: (more…)

Banks Have Exited TARP…So?

Recently, Bank of America, Citigroup and Wells Fargo have joined with Treasury Department officials to proudly announce their exit from the Troubled Asset Relief Program. The Washington Post’s Steven Pearlstein is appropriately skeptical:

By rushing to cash in their chips, however, the administration not only gave up political leverage and additional profit, but took the risk that one or more of the banks may find that it can’t make it on its own. While the financial system has rebounded faster than anyone could have imagined, potential threats still loom — a further collapse of commercial real estate, for example, or a string of sovereign debt defaults. And bank profits, while having rebounded, remain significantly dependent on the availability of cheap funding from the Federal Reserve and other central banks that cannot be expected to last indefinitely.

The broader “optics” problem here, I think, is that by having all the banks exit TARP it creates the impression that the banks are okay and they will now make loans to homeowners and small businesses. But the banks are A.) not okay and B.) are now under less government pressure since they exited TARP. It’s understandable that the Obama administration wants to wind down the politically unpopular TARP. But the public discontent ultimately doesn’t lie with “TARP.” It lies with the big Wall Street banks, which are unlikely to suddenly act in the public good because they’ve exited the bailout program.

So Is Citigroup Supposed To Be Successful Now?

The New York Times’ Jeff Zeleny and Eric Dash reported this morning that Citigroup reached a deal with the Treasury Dept. to become “the last big Wall Street bank to exit the government bailout program.” Citigroup’s exit from the Troubled Asset Relief Program bolsters the notion that the George W. Bush and Barack Obama administration have successfully executed a recovery of the banks — while the overall economy continues to be awful.

But the Times does a nice job conveying that the health of Wall Street-involved banks like Citigroup and Bank of America is still shaky: (more…)

The FHA’s Fancy New Standards

At least one part of the Obama administration is trying to do something about abusive mortgage lending. The Washington Post’s Dina ElBoghdady reports that Housing and Urban Development’s Federal Housing Administration wants stricter requirements on the home loans that it has traditionally insured — one of the oldest ways (FHA has been around since the 30′s) that the federal government has boosted the housing market. In order for FHA to guarantee a loan, HUD Sec. Shaun Donovan wants borrowers to put down a five percent down payment and have a certain minimum credit score (the article just says that Donovan thinks the current score of 500 out of 850 is too low).

ElBoghdady reported a few weeks ago that FHA’s reserves are perilously low, because so many borrowers they insured defaulted. Beyond the long-term strategy he’s supposed to outline, Donovan needs to do something now or else taxpayers will have to bailout what has been a self-sustaining federal agency.

Doomsday for FHA?

Housing Urban Development’s Federal Housing Administration was created during the New Deal to rebuild confidence in the housing market. Today, it is the only federal agency to not rely on taxpayer dollars: its funding comes from borrowers who take out FHA-financed mortgages. However, the Washington Posts’ Dina ElBoghdady explains that FHA might need a taxpayer bailout. Due to the high number of borrowers who have defaulted on FHA loans, the agency has run out of money from its emergency fund, which is managed by the Treasury Dept. ElBoghdady reports that Treasury will continue to fund FHA, even if the agency goes in the red. Only now the money will come from taxpayers, not the reserve fund.

Will Congress scream and shout? Maybe not — ElBoghdady writes that “the agency’s complex funding mechanism is little understood in Washington, including on Capitol Hill.”