Monday reading from Sunday's NY Times. Trust me, it's interesting!

I know that reading about Fannie Mae and Freddie Mac is kinda boring, but this may help explain it all for you.  Gretchen Morgenson is a business columnist for the NY Times.  In my opinion, she's one of the best business writers ever, and her columns always explain a lot in plain English.  Her column from yesterday's NYT is The Housing Market is Still Missing a Backbone (title should link).

In a section about winding down Fannie Mae and Freddie Mac, Morgenson writes "...to prove how hard this will be, both companies later in the week announced enormous profits for the second quarter of this year, most of which go to the government in the form of dividends. Together, the companies reported $15 billion in profits; with Treasury on the receiving end of this lush income stream, it will be tempting to keep the mortgage finance giants in business." She continues "...For starters, banks have grown accustomed to earning fees for making mortgages that they sell to Fannie and Freddie [Emphasis mine.] Generating fee income while placing the long-term credit or interest rate risk on the government’s balance sheet is a win-win for the banks."

Morgenson goes on to discuss why it's so hard to lure private investors into the mortgage market.  She's not talking about a flipper that has, say, 30 houses.  She means the institutions that buy millions and millions of dollars worth of bundles of thousands and thousands of mortgages.  Anyway, this is a great read from a very talented columnist.

The 3.8% "real estate tax," home equity lines and more -- Sunday reading

Have you been getting lots of emails warning you about the 3.8% tax that you'll pay on your house sale? Your worries are over -- L.A. Times explains it all for you here.  For those of you that don't want to read the whole article, here's the dope: "Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the healthcare law, giving you a revised AGI of $350,000. Since the law imposes the 3.8% surtax on the lesser of either the amount your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times 0.038)." A surtax of $950 on a $525k profit? Stop complaining.

And from Gretchen Morgenson at the NY Times, here's a column about the looming equity line of credit resets -- just when you think everybody's first mortgages are no longer such a problem, up pops the resetting interest rates on the LOCs, which are mostly 2nd mortgages.  My take is that the LOCs' interest rates were always higher because they are riskier.  Shouldn't the lending institutions take on some of this risk?

Gretchen Morgenson and Michael Hiltzik explain the foreclosure settlement

I was so excited.  I thought the almost-nationwide foreclosure settlement between the five big banks and the states would provide relief for underwater homeowners.  I thought it might be an end to short sales as we've come to know and love them.  But no. 

New York Times business columnist Gretchen Morgenson bursts the bubble here. (BTW, Gretchen is really readable -- she makes even the most arcane, convoluted financial stuff very easy to understand. Really.)  Here are a few quotes:

"There’s no doubt that the banks are happy with this deal. You would be, too, if your bill for lying to courts and end-running the law came to less than $2,000 per loan file."

And "For most homeowners, it will barely move the needle. Forgiving $17 billion in principal “is a drop in the ocean ... given that close to 11 million borrowers are underwater on their loans to the tune of $700 billion in total.”

Michael Hitlzik from the Los Angeles Times is my other favorite financial columnist (along with David Lazarus) and his column from today's LAT is here. Some quotes:

"I believe the technical term for all this is "big whoop." The provisions mostly require mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud. The rest is pretty much out of the best-practices manual of customer service, which benefits both the customer and the institution."

And "In the words of business consultant...Yves Smith, "We've now set a price for forgeries and fabricating documents. It's $2,000 per loan." She observes, quite properly, that the payoff is a minuscule fraction of the costs these practices have imposed on borrowers, the court system and the economy."

Whew. So much for thinking that things were going to change -- silly me.  Thanks, Gretchen and Michael.

Sunday a.m. newspaper reading with New York Times' Gretchen Morgenson

Today's Sunday a.m. reading comes to us courtesy of the NY Times and their stellar regular columnist, Gretchen Morgenson.  Her article is entitled Some Bankers Never Learn and it's about the (new, not-so-improved) rise of risky low-down loans. Title and above should link. Ms. Morgenson talks about the Dodd-Frank bill and what it would mean to the mortgage market.  My favorite quote: "Basically, Wall Street would have to eat a bit of its own cooking."  The columnist comes out squarely on the side of requiring all mortgage loans to have 20% down.

Although it sounds great in theory, and I love Morgenson to pieces, I need to differ with her on this.  Where are people supposed to get that 20%?  Considering the economic client of the last few years, how would it be possible for any middle-class person to have saved that much unless they happen to be employed in a very few select industries? Or have tapped the Bank of Mom and Dad? Yes, zero-down loans are risky -- but can't we compromise and go with 5% down loans?  Unless we want to see our markets tank again?

IMO, the L.A. Times is back! At least the biz section, anyway

Many of us were dismayed when the L.A. Times began to cut back on its editorial staff and pages a few years ago.  Personally, I missed the separate LAT real estate section and the L.A. Land blog, especially when the editor was the outstanding Peter Viles.  I turned to Calculated Risk and Gretchen Morgenson of the New York Times for my real estate and business news. Caveat: while I don’t have a really sophisticated understanding of all things finance, I do try to keep up with the news, especially about banking, lending and real estate.

But regular business columnists David Lazarus and Michael Hiltzik have changed my mind about the quality of the L.A. Times’ business reporting.  Both are outstanding writers and produce business news columns that are informative, topical and easy to follow for us regular folks.  I’ll never give up reading NYT’s Gretchen, and this isn't a smackdown, but Lazarus and Hiltzik make reading the L.A. Times biz section an educational pleasure once again.

Sunday reading from Gretchen Morgenson at the New York Times

Gretchen Morgenson, the NY Times business columnist, has written an article entitled "In this Play, One Role is Enough."  Link here in case the title above doesn't work.  It details a bill introduced in the U.S. Congress by Rep. Brad Miller (D-NC).  If passed, the bill will help unwind the second mortgage mess that's holding up so many short sales.  Go, Rep. Miller!

An NYT explanation of why loan modifications aren't working

I always find Gretchen Morgenson, New York Times business columnist, to be very user friendly and readable. Here's her article from yesterday's New York Times about why loan modifications aren't working out so well. An interesting quote:

"The terms of loan modifications also make them especially failure-prone because the government calculates “affordability” (how much mortgage debt a borrower can actually manage) in a highly unusual way — raising serious questions for the housing market over all and for the program’s effectiveness for borrowers. For example, in devising what it considers an affordable mortgage payment, the program doesn’t account for all of a borrower’s debts — the first mortgage, second lien, credit card debt and automobile payments. Instead, it calculates affordability using only the borrower’s first mortgage payment, insurance and property taxes."

The article also goes on to address the issue of high-interest second mortgages held by major banks.

Why loan modifications aren't happening

Today's New York Times business section has an interesting column regarding why more loans aren't being modified. Check the story by Gretchen Morgenson here. In short, there are two reasons: fear of lawsuits from investors, and fear that servicers of loans will make out like bandits, while leaving the owners of the loans high and dry.

Sunday reading plus comments. Yes, from the NYT Business Section.

Here are two great articles from today's New York Times' Business section. Gretchen Morgenson wrote the first, titled Was There a Loan It Didn't Like? about a senior mortgage underwriter's experiences at WaMu. As you might expect from the title, the underwriter, Ms. Cooper, was pressured by higher-ups to approve any and all loans, regardless of what the loan applications and packages looked like.

I take issue, though, with a couple of statements in the article. First, mid-way through the article and Ms. Cooper's story: "Although Ms. Cooper couldn't see it, the wheels were already coming off the subprime bus." C'mon. Everybody who thought about this process at all figured out in advance that many people would eventually not be able to pay back their huge debts. This is why usury laws have existed throughout history. Also, "Hidden fees meant brokers could easily make between $20,000 and $40,000 on a $500,000 loan." Huh? How hidden could fees be when they're thoroughly itemized at closing? And all states require complete itemization as part of their consumer protections. And $20k to $40k? The standard origination fee is 1%, and that would be $5,000. Yes, there are garbage fees like processing, document fees, etc., but I've never, ever heard of them amounting to more than 2% of the loan. But whatever; it's a great article anyway.

The second article is by my new favorite economic columnist next to Ben Stein, Robert J. Shiller. Titled Challenging the Crowd in Whispers, Not Shouts, and it's about the group-think that led the Fed, prominent economists and other major financing institutions to ignore the mortgage market meltdown until it was too late. The article's tag says, "A taxi driver seemed to sense what economists didn't." Uh, yeah.

Good Articles from Sunday's New York Times

Here are links to a couple of good real estate articles in today's (April 13) New York Times Business Section. The first, by columnist Gretchen Morgenson, is entitled "So You Thought You Had an Equity Line" and is about the increasing bank freezes of home equity lines of credit . Yikes. The second is from sometime-tv-star Ben Stein (see my post on him from February), and is yet another call -- from a Republican, no less -- for more regulation of the financial markets.