Senator Bunning Not Snowed By Fed

In an alarming exhibition of honesty and courage rarely seen in elected officials, Senator Jim Bunning (R-KY) blasted Fed Chairman Ben Bernanke, who was testifying before the Senate Banking, Housing and Urban Affairs Committee for asking for more powers to fix what the Senator called "the mess we are in today". Calling the Fed the problem and not the solution, Bunning is a breath of fresh air in government. Below is an excerpt from the speech which apparently is available on the Senator's website, however, it appears the website is down at the moment.

clipped from www.creditwritedowns.com Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.

Federal Reserve Board Amends Regulation Z

In an attempt to convince homeowners that the Federal Reserve is indignant about shady loan practices, the Federal Reserve Board today declared they would be approving a rule which would prohibit unfair, abusive or deceptive home mortgage lending practices. This is the same board that allowed these practices to become so prevalent in the home mortgage market to begin with. Had the Federal Reserve stepped in sooner, like say 1998, the U.S. economy would still be strong, our homes would still be safe and we wouldn't be wondering which bank is going to fail next. Below are some of the provisions of the new rule. Take a look at the new rules below and see if it doesn't boggle your mind that these practices were not addressed sooner. This half-hearted attempt at seeming concerned knowing that for the past 10 years they sat on their assets and refused to look out for the consumer is too little, too late.

clipped from federalreserve.gov Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice." Require creditors to verify the income and assets they rely upon to determine repayment ability. Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed. Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.

Mental Recession Comment Insults American People

Republican John McCain hired former Senator Phil Gramm to prop up his admitted weakness in economic policy. Instead, the financial guru, as McCain has referred to him, has insulted each and every American who struggle to keep their homes, put food on the table and who vote....yeah, remember Mr. Guru...we vote! I would love to see Mr. Gramm come to Montgomery, Alabama and tell Mr. and Mrs. Consumer that their house is not REALLY in foreclosure but rather this is a "mental foreclosure" and if it is a real foreclosure stop whining about it. Perhaps $4 per gallon of gas is just a mirage and if we rub our eyes it will go away. The audacity of such a comment is a clear indication that Mr. Gramm, McCain and the entire Republican party is in an unreasonable, irrational state of denial. Since when did they have to fill up their own vehicle or buy their own groceries even? The next comment from him will be "let them eat cake"!

clipped from www.nytimes.com BELLEVILLE, Mich. — Senator John McCain has spent the week trying to tell people that he feels their economic pain. So it was more than a little unhelpful when one of his top economic advisers was quoted Thursday as saying that the United States was only in a “mental recession” and that it had become a “nation of whiners.”

Bankruptcy May Help You Save Your Home

Just this week my office has had a 100% increase in initial bankruptcy calls. Potential client calls are an informal way to gauge the state of the economy and if accurate, they will indicate we are only seeing the tip of the proverbial iceberg in the housing market. As reported below, the foreclosure problem is only getting worse and consumers who are risking losing their home to foreclosure are turning to the bankruptcy courts to help them save their homes. Filing bankruptcy will stop foreclosures and allow the consumer the ability to cure arrears while they keep their home. Bankruptcy will not change your house payment but it may allow you to take care of the other bills that may make it difficult for you to pay your mortgage. Interestingly, we may soon see a scenario where mortgage companies themselves are going bankruptcy. See the below article on Fannie Mae, a government sponsored mortgage company who is essentially insolvent now. What happens when the government can't bail these upside down lenders out remains to be seen.

clipped from www.bloomberg.com ``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.'' clipped from www.bloomberg.com Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

Obama Proposes Bankruptcy Changes

Correctly characterizing the 2008 election as the "fat cats vs. struggling families", Barack Obama called for a change in the bankruptcy code to help military families, the elderly and those with extraordinary medical bills. Perhaps Obama is trying to show that he is the candidate for the average working class voter who previously may have been persuaded to vote for Hillary Clinton or John Edwards. Speaking of John Edwards, the former Senator gave a very vice-presidential speech today. As a consumer advocate, it is my belief this may be the best hope for the struggling families that I represent on a daily basis.

clipped from www.ajc.com Barack Obama moved Tuesday to paint the 2008 presidential election in stark terms of rich vs. poor, fat cats vs. struggling families. Those families, he said, "are being preyed upon by predatory lenders. If you're protecting America, America should be protecting you from unfair bankruptcy laws."

Did Negative Equity Contribute to GM's Downfall

The current industry practice of rolling negative equity in new car loans could be a factor in GM's downward spiral. Negative equity occurs when a car buyer owes more on their vehicle than the vehicle is worth or than the dealer is willing to give on trade-in. In the past, dealerships have traditionally added in the negative equity into the total price of the vehicle which the car buyer finances. Of course, this means that not only does the brand new vehicle lose thousands in value when you drive it off the lot, but now the buyer has to pay thousands more for the vehicle because of the negative equity. (Fortunately, Chapter 13 allows the consumer to strip off the negative equity from the contract if the vehicle was purchased in the last 910 days before filing.) However, if the buyer defaults on the loan, the lender is stuck with the negative equity burden. Despite the potential losses, lenders, including GM who is one step away from bankruptcy, continue to pad loans with this non-existent collateral causing analysts to scratch their head.

clipped from market-ticker.denninger.net We have SIVs, "Covenant Light" (the businessman's version of "no ratio" mortgages), fog-a-mirror mortgages, toggle bonds, securitization with cooked ratings and "errors" in computer programs, negative amortization, rolling balances forward in auto lending and more. We have consumers who have been rolling credit card debt from one zero-interest balance transfer card to another in a desperate attempt to avoid having to make payments they don't have. We have commercial real estate construction loans going out with cap rates that are insanely light - all "on the come" of appreciation in "values", and our Boomers have spent the false appreciation that they never had, destroying the largest store of wealth they owned - their homes. (BTW, GM is still writing negative rollover auto loans! If you're wondering whether GM can or might actually go under, the answer is "yes", and that's why.)