Cited: The Associated Press

Is it a sign that the cost to taxpayers for bailing out the mortgage giant, Fannie Mae, could be less than once thought? Fannie Mae is actually asking for less money this quarter. On August 5, the government controlled mortgage buyer said they were able to set aside enough money to cover the majority of losses from bad loans made 2005-2008.

It requested $1.5 billion in additional taxpayer aid after posting the best quarterly results since the company was put under federal control in September 2008. It was also the smallest quarterly request for assistance since November 2008.

Analysts, however, cautioned that the company’s financial picture could still weaken. Anthony Sanders, a finance professor at George Mason University, said the numbers are artificially low because of the slow pace of the foreclosure process.

“These foreclosures are gathering up,” Sanders said. “The dam is going to break eventually.”

Fannie Mae said August 5 that it lost $3.13 billion, or 55 cents per share, in the April-to-June period. The company’s losses take into account $1.9 billion in dividends paid to the Treasury Department. They compare with a loss of $15.2 billion, or $2.67 a share, in the quarter a year ago.

“Across our industry, we are seeing a more realistic approach to housing and lending that bodes well for the future,” Mike Williams, the company’s chief executive, said in a statement. The company said loans made last year are faring slightly better than those made during 2001 through 2004, before the company lowered its lending standards.

The government rescued Fannie Mae and sibling company Freddie Mac from the brink of failure nearly two years ago. The new request means they have needed $146.4 billion to stay afloat.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors.

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During the housing boom, Fannie and Freddie faced political pressure to expand homeownership and competitive pressure from Wall Street to back ever-riskier loans. When the market went bust, defaults and foreclosures piled up, and the government had to take them over.

There were some encouraging signs among Fannie Mae’s borrowers. As of the end of June, about 5% of the company’s borrowers had missed at least three months of mortgage payments. That’s down from 5.4% at the end of December, but still up from 3.9% in June 2009.

Fannie Mae had $218.2 billion in bad loans at the end of June, up only slightly from $216.5 billion at the end of last year. It owned more than 129,000 foreclosed properties, up from nearly 110,000 at the end of April.

Some analysts doubt that company has turned a corner. Once mortgage modifications made under the federal government’s $75 billion homeowner assistance start to go bad, they say, Fannie Mae will start to be hit with increased losses.

“They’re putting a rosy picture on it,” said Edward Pinto, a housing consultant who served as Fannie’s chief credit officer in the late 1980s. “Basically, they’re kicking the can down the road on these modifications.”

Edward DeMarco, the government’s chief regulator of the two companies, said in interview last week that the total cost to taxpayers for rescuing Fannie and Freddie should be less than $400 billion. That’s under most economic scenarios, he said.

Over the next year, lawmakers plan to review the entire system for providing mortgages to Americans. That could include a dramatic overhaul of Fannie and Freddie, or ultimately their elimination.

The financial overhaul signed by President Barack Obama didn’t address that issue, despite protests from Republicans that it was incomplete without such a plan. The administration is holding a public conference on Aug. 17 in Washington to discuss the mortgage system.

“The country needs lawmakers to come to an agreement on this,” DeMarco said. The mortgage market, he said, can’t operate indefinitely with the government providing life support. “We’re going to have to figure out a solution.”

According to Jim Vogel, an analyst at FTN financial, if Fannie Mae’s losses keep falling it could make finding a solution easier for lawmakers. “This is the 1st step toward really opening the dialogue about what comes next,” he stated. “You can’t talk about the future when you still have losses hanging over your head.”

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My Take: It would be a miracle if this actually occurred! I am sorry, any business that needs help in the form of a small business loan or tax cuts during a recession is not going to get out of trouble quickly. Business with financial problems would not even be able to get a merchant cash advance. Yet, these real estate corporations that federal bailout money. Go figure!

I understand that many homeowners have even asked for the services of a San Diego real estate attorney to help them get back on track with their mortgages. It seems that a lot of banks really don’t want to refinance bad mortgages. What these banks are forgetting is that a mortgage is equivalent to a contract. It is a document that 2 parties participate in one agreeing to make payment for the other. So if you happen to be arguing with your bank, you might try contacting a San Diego contracts attorney you can’t get all the real estate attorney.

Other people have actually given up and turn to property auctions to get some of the money out of their homes before the banks close. From what I understand, auction home buyers actually get better deals on real estate. And I think I’m actually trying to buy a home in this market.

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Cited: AP

Banks are still failing at an accelerated rate and other banks are still struggling despite signs of an improving economy. How can people protect their savings? Can anything be done to turn the banking sector around? The latest quarterly report on the banking industry paid a grim picture. Here are some questions and answers about the US bank failures.

Q: How bad is this wave of failures?

A: A cascade of collapses began last year as the financial crisis struck.

Eighty-four banks have fallen so far this year as tumbling home prices and spiking unemployment pushed loan defaults upward. That’s the largest number in a year since the early 1990s, at the apex of the savings and loan crisis. It compares with 25 bank failures last year and three in 2007. The failures have sapped billions from the federal deposit insurance fund, which guarantees account holders’ money when banks go under. The fund stood at $10.4 billion in the second quarter, its lowest point since 1992.

The biggest failure this year: Colonial Bank, a heavy regional lender in real estate development based in Montgomery, Ala., which became the sixth-largest bank failure in U.S. history on Aug. 14. The Federal Deposit Insurance Corp. seized Colonial and sold its $20 billion in deposits, 346 branches in five states and about $22 billion of its assets to BB&T Corp.

Some analysts believe another 100 to 300 banks could fail before the crisis runs its course, largely because of souring loans for commercial real estate. The number of institutions on the FDIC’s internal “problem list” — those rated by examiners as having very low capital cushions against risk and other deficiencies — jumped to 416 at the end of June from 305 in the first quarter, the agency reported Thursday.

Q: What is behind this?

A: Banks around the country have run into trouble on their loans for construction and development, the fastest-growing category of troubled loans for U.S. banks, especially in overbuilt areas. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans.

Lots of banks have heavy concentrations of these loans in their lending portfolios, and some small banks are considered by regulators to be particularly vulnerable. Delinquent loan payments and defaults by commercial and residential developers have surged to the highest levels since the early 1990s, during the S&L crisis.

At the same time, some recent failures have been smaller banks brought down by garden-variety loans that have soured during the recession. Regulators say they’re concerned about growing delinquencies on prime, conventional home loans.

Q: So even though the economy is starting to recover, banks are still struggling?

A: The condition of the banking industry is what economists call a lagging indicator: It falls behind the state of the economy because the problems take longer to percolate through banks, as opposed to other signposts such as consumer spending, gross domestic product or permits for building construction. That means the pain will continue to weigh on the banking sector while the economy rebounds.

FDIC Chairman Sheila Bair offered a reminder on Thursday: “Banking industry performance is, as always, a lagging indicator.”

Q: What will it take to turn the banking industry around?

A: Not much other than time, experts say.

“The only thing you could do is … to ignore the losses that are already there,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington. That would be a terrible mistake, she said, noting that regulators’ blind eye in the 1980s prolonged the S&L crisis.

“The best thing for the banking industry is just to take it on the chin and move on,” she said.

Q: What about me? What can I do to protect my money in the bank?

A: Accounts are insured by the FDIC up to $250,000 per depositor per bank. Joint accounts are insured up to that amount for each co-owner of the account; individual retirement accounts, or IRAs, held in banks are also insured.

If you have multiple individual accounts at one bank, it’s important to structure them carefully so they don’t exceed the limits. The FDIC has a calculator on its Web site called the electronic deposit insurance estimator, or EDIE, that can help determine how much money in deposit accounts, if any, exceeds the insurance limits. You can find it here: http://tinyurl.com/lt3aok.

If you do have deposit accounts in a failed bank that go beyond the insured limits, you just became a creditor of the bank. Of course, you may only get $.40 on the dollar up to the full amount eventually. You also have to realize that it could take months to even get a percentage of the total back.

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My Take: I definitely do not have to worry about going over the limit in my checking account or savings account. I would never have enough money to even get close to that insurers limit. It would be nice though! I do not know what I would do if the bank I am with did fail and I lost all of my money. I wonder how long it would take the FDIC to return it?

I am old enough to have a parent who lived through the Great Depression. My mother has told me some horrendous stories of what happened to people. I would hope that this country has learned its lessons and not allow the same things to happen again. I cannot even imagine not being able to buy a new or used pair of shoes.

Right now, the economy is bad enough that we are pretty close to what happened in the 30s. I am still waiting for the other shoe to drop. I am praying that it never does. If it does drop, this country is in a world of hurt. As it is, people are selling their Piermont real estate at reduced rates just to avoid foreclosures. I also understand that Rockland County riverfront property is going fairly cheap.

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