Big Banks | timiacono.com - Part 20

[There hasn't been much news - good or bad - about the reverse mortgage business or, if there has been, it hasn't crossed my computer screen. In one of the very few consumer lending growth sectors for banks - where the fees are high and the alternatives for seniors are few - it seems that banks are going about their business in loaning more and more money to the dwindling numbers of homeowners that still have equity (and high medical bills). From June 25th, 2007 comes this look at the business of reverse mortgages.]

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Cash-strapped seniors are now “sitting on vast amounts of untapped equity” and something has got to be done about it!

Enter legions of helpful bankers and Wall Street firms anxious to help facilitate the equity extraction for upwards of four percent before the homeowner sees a penny, all in the name of perpetuating an economic model that looks more and more like Bizarro World.

As the subprime debacle shows no sign of slowing down and credit begins to tighten for traditional mortgage products (a few years too late), the banking industry has set its sights on the next hot growth sector – reverse mortgages.

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Mozilo Case Cleared for Trial

It looks like it’s still possible that Orangelo Mozilo might still don an orange jumpsuit someday as Reuters reports that the SEC’s case against the founder of Countrywide Financial (gobbled up by Bank of America during the financial crisis) will soon go to trial.

In one of the highest profile enforcement actions to arise out of the recent financial collapse, the SEC accused Mozilo, former Countrywide President David Sambol and former Chief Financial Officer Eric Sieracki of failing to disclose the true state of Countrywide’s deteriorating mortgage portfolio.Regulators also contend Mozilo made millions by dumping Countrywide stock before the truth emerged.

Attorneys for the defendants have denied any wrongdoing, and argued in court filings that Countrywide was upfront about the risks of its mortgages.

But U.S. District Judge John Walter refused to resolve the case in Mozilo’s favor on Thursday, ruling that the SEC had raised enough factual issues for it to be decided by a jury, according to court documents.

The SEC presented evidence that Mozilo’s stock sales in 2006 and 2007 were “significantly out-of-line with his prior trading plans or practices,” Walter wrote. Thus a jury can decide whether Mozilo acted on inside information, Walter ruled, adding that Mozilo netted over $140 million from those transactions.

Anyone interested in some graphical representations of the orange man’s stock sales can visit Google Images to find a few charts created by yours truly a year or two ago when the sales were in progress. Also see, this search at the old blog for all kinds of ump lumpa related material, Angelo Mozilo is a Moron atop the list.

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Zombies in the News Again

It seems that, as we venture further into the post-2008 crash financial world, the word “zombie” is popping up more and more, two sightings to be found in just a cursory scan of the news this morning, zombie buildings in Spain as reported by the Wall Street Journal and this commentary about zombie banks by Jonathan Weil at Bloomberg.

Zombie Banks Have Us Right Where They Want Us


Here’s the kind of thing that passes for free enterprise now. Last month a fellow named Michael Carpenter, who is the chief executive officer of Ally Financial, got on a conference call with securities analysts and gushed with delight about the $3.5 billion price that General Motors had just agreed to pay for the subprime auto lender AmeriCredit. Based on that transaction, he proclaimed, Ally might be worth $30 billion.

GM, which owns a 6.7 percent stake in Ally, is Ally’s former parent.

“I love the AmeriCredit deal,” said Carpenter, whom some might remember from his days as the head of the securities firm Kidder Peabody. “I don’t have any doubt about our ability to repay the U.S. Treasury. So I think it’s great.”

The federal government so far has spent $17.2 billion to bail out Ally, the lender formerly known as GMAC Inc. Taxpayers hold a 56.3 percent stake in the company, which says it may hold an initial public offering next year if it can’t find a buyer.

What a spectacle. Here you had the CEO of a thrice-bailed- out zombie bank, drooling over how much a government-owned carmaker was going to pay for a publicly traded subprime lender, and using this price as a yardstick for his own bank’s paper worth. In a sane world, Ally would have been liquidated already. Any capital it’s able to raise is money that otherwise might go to more deserving enterprises.

Weil goes on to lament the propping up of the housing market, savers being punished with low interest rates, and  how we need to throw the bums in Washington out.

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Five Key Points on Buying a Short Sale

Now that our attempt to purchase a short sale property has come to a disappointing conclusion (see this item from Monday for full details), the catharsis of sharing a few parting thoughts on the subject seemed to be in order so as to, perhaps, help others who might be in the middle of trying to buy a short sale property or thinking about doing so.

In contrast to the plight of underwater sellers, there appears to be little positive to relate from the buyer’s end of the transaction  which consists of varying degrees of uncertainty, frustration, delays, and disappointment in what is an emotional roller coaster ride that no one deserves but, as was the case for the two of us, people are all too willing to give a shot because the house that they really want became available as a short sale at a reasonable asking price.

But, there is good news for short sale sellers – those who borrowed and spent way more than they should have – in that you can probably live there in your own house rent free for quite some time while the banks, real estate agents, and doe-eyed buyers stumble through this process that only seems to serve one purpose – “extend and pretend” for the banks, delaying the realization of losses for as long as possible.

Sellers can play the “extend and pretend” game too. Ideally, you’ll want to try to get your mortgage modified for about a year and, after that fails, then see if you can keep your home listed as a short sale for another year, bolstering your personal finances by tens of thousands of dollars during that time since you’re not making any mortgage payments.

If you think I’m bitter, you’d be absolutely correct.

Here are a few thoughts from an unsuccessful buyer’s perspective that might be helpful to anyone involved in or interested in trying to buy a short sale property.

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Punish the Savers – Part 64

Among the many other oddities in our financial world that are now accepted as “normal”, future historians will be left to pass judgment on how, here in 2010,  U.S. monetary policy continues to punish the group that the nation needs most if it is to somehow restore balance to its money flows – savers.  This New York Times story takes up the issue:

Perversely, coming after a devastating financial crisis caused by companies and households that feasted on borrowing, ultralow interest rates are penalizing people who have paid down their debt and are now trying to save. It is also punishing those who rely on the proceeds of their nest eggs to pay the bills.

“It’s the whole point of low rates, to entice borrowing and discourage saving, but it means a massive wealth transfer from savers to borrowers,” said Greg McBride, a senior financial analyst at Bankrate.com. “It is a trend on steroids now because interest rates have been cut to the bone.”

For example, anyone keeping $500,000 in a 12-month certificate of deposit earning a rate of 1.5 percent annually — one of the best savings rates available nationally these days — would earn $7,500 a year, hardly enough to live on. Just three years ago, that same investment would have generated $26,250.

“You have spent your life being prudent, building a nest egg for your retirement, and now the returns are terrible,” said Todd E. Petzel, chief investment adviser at Offit Capital Advisors, a wealth advisory company in New York. “I am 58 years old. I know lots of my peers who are thinking of retiring, and they are scared to death.”

I really feel for a lot of these fifty-somethings and their elders who are just now learning how central bankers have stacked the deck against them and are, unjustifiably, as scared of owning gold as they are of outlasting their meager savings, now earning one percent.

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