The Great Bank Robberies of the Century

Being in the bainking industry for as long as I have, the banks today have very sophisticated procedures and alarm systems to prevent thefts. Well they failed miserably. The banks got ROBBED by the people that were supposed to be maintaining the security systems. Its amazing to me that the former CEO's of Wachovia, Citibank, Merril Lynch, Washington Mutual, Countrywide and every other bank out there that failed are not SITTING IN A JAIL CELL waiting trial for robbing the bank. The question that is most unanswered today is WHERE DID THE MONEY GO?, and will these guys be prohibited from ever sitting on the board of a bank again? Well time will tell.

Loan Modifications- They aren't working!

NEW YORK (CNNMoney.com) -- That lenders are ramping up their attempts to help troubled home borrowers is the good news.

Now for the bad: Most of the mortgage fixes being deployed are destined to fail.

Hope Now, the coalition put together to fight foreclosures, boasts that it has helped 3 million families stay in their homes since the housing crisis began in July 2007.

But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages.

Meanwhile, foreclosures remain on the rise: More than a million homes have been repossessed since the start of the meltdown.

Michael Van Zalingen has witnessed the problem first hand as director of home ownership services for Neighborhood Housing Services of Chicago, a non-profit group that provides foreclosure-prevention counseling.

Lenders and servicers take two approaches to working out mortgage problems: repayment plans and mortgage modifications. Repayment plans allow borrowers some time to make up missed payments. Modifications actually rewrite the terms of loans by freezing or lowering interest rates, extending the life of the loan, or reducing the amount owed.

Mortgage modifications are meant to be more effective. The problem, Van Zalingen said, is that they too often fail to reduce a borrower's monthly house payment.

The lenders often don't change the interest rates but merely freeze them at a high, unaffordable level, and then add missed payments into the balance, which increases it, according to Van Zalingen.

He said that one-third of his 121 clients granted modifications between January 2007 and June 2008 wound up with housing payments equal to a whopping 50% or more of their gross incomes.

"The modifications did not put any breathing room into their budgets at all," he said.

Before the housing bubble began, underwriters generally wouldn't approve mortgages that required monthly payments of more than 28% of a borrower's gross income.

Modifications that include interest rate reductions that result in lower payments perform much better. A recent Credit Suisse study reported redefault rates of only 15% for this kind of modification.

Chris and Cherita Barnes: Help...but not really
Chris and Cherita Barnes got a mortgage modification from their servicer, Ocwen Financial Corp., in March 2008.

But they're already behind again. The loan workout froze the 8.75% interest rate on their adjustable rate loan, but added their missed payments, interest and late fees back into the mortgage balance, raising it to $354,000 from $329,000.

The Barnes' new monthly bill came to $3,167, up from $2,890. That was better than it would have been had their interest rate continued to reset higher but it still pushed their mortgage payments, including taxes and insurance, to about 53% of their income.

The couple, who both work and have three kids, are now trying to figure out what to do next.

The Barnes' predicament is not unusual, according to James Jones, a foreclosure-prevention counselor with the East Side Organizing Project in Cleveland.

"I see quite a few of these [unmanageable modifications]," said Jones. "When we get offered them by lenders, we challenge them."

But many borrowers are terrified of losing their homes and, in that vulnerable state, will accept whatever lenders offer them -- especially if they don't have an experienced advocate helping them.

Van Zalingen said his counselors try to negotiate better workouts, but the modification offers are often presented on a take-it-or-leave-it basis, and many desperate homeowners take them.

Geoffrey Bagley: Unrealistic expectations
Geoffrey Bagley is another borrower who received an unsustainable mortgage modification. After the monthly payment on his adjustable rate mortgage jumped to $2,400 from $1,300, he got a workout with the help of the National Community Reinvestment Coalition, a community advocacy group that offers mortgage-prevention counseling.

That workout may have pushed his payment down to $2,000, but it still represented more than 50% of the gross income he and his wife earn.

"That's because the lender based the modification on the Bagley's income with overtime," said Jesse Van Tol, a spokesman for the coalition. "But in a recession, that overtime often disappears."

Lately, the couple has lost hours at work and they started missing payments. They're trying to apply for another, more affordable modification, but it looks like they'll probably lose their Maryland home.

Modifications that don't involve some kind of principal reduction or somehow lower payments substantially "just don't work very well," said Mark Zandi, chief economist for Moody's Economy.com. But, he added, many lenders have recently gotten much more aggressive when it comes to loan modifications.

The attitude among lenders seems to be evolving. In just the past couple of months, JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) announced more comprehensive foreclosure-prevention programs.

According to Paul Koches, an executive vice president at Ocwen, it makes no sense to modify a loan if it results in an unaffordable payment. The mortgage will simply default again, resulting in even wider losses.

Ocwen is now considering reworking that Barnes' loan.

"I got a call from Ocwen out of the blue," said Chris Barnes. "They now want to work with me to resolve my situation."

Courtesy CNN Money

Country's Problems Solved

It has been a while since I have blogged, but with the election of 2008 over, I have the sudden urge now. With the election of Barak Obama, the Big O as I will now and forever refer to him as. All of the United States problems are now gone. With an African American President, this Country is no longer "racist". With the Big O, our overspending is over, the war in Iraq is over, the war in Afghanistan is over, discrimination is over, our negative view in the world is gone, and so on and so on. The Bog "O" has a democratic congress, so THERE IS NO EXCUSE FOR HIM AND HIS PARTY TO NOT SET THINGS STRAIGHT IN THIS COUNTRY! I am looking forward to the next 1000 years being smooth and peacefull. Lets see what he does. Personally I think he will be the most "handicapped" President since this country was founded. He has raised expectations so high by not detailing his plans, so every group that voted for him is expecting everything from him. This will hobble him. He will leave office more unpopular than Hoover was. I am only hoping that Sarah Palin stays active and I can take an active role in her campaign in 2012.

Who Wants Wachovia?

Well it seems that a war has broken out between Citigroup and Wells Fargo over who gets to buy Wachovia. According to Wachovia's filings last week, they stated that if Citigroup didn't buy them out that day, there was a good chance that Wachovia would be siezed by federal regulators. WAIT A SECOND HERE! Wasn't this the bank that only a couple of months ago was still pushing option arms? Wasn't this the bank that was supposed to be so solid in statement after statement by senior management, ie Ken Thompson? Now it would seem to me that people bought and sold stock, invested money with, applied for mortgages, opened accounts based on this "information" from the CEO and the Company. Where are the regulators? Where is the FBI? Why aren't these people being indicted? I thought banks were highly regulated institutions. Who is lying here? What happened to our money? Well,you can be the judge of that.
Seems Wachovia manages a fund that several large colleges and universities use, and when these organizations wanted to pull their money from this fund, Wachovia initially limited them as to how much they could take out. What happened to that money? Well, inquiring minds want to know......Stay tuned on that one.

I know it seems like I am picking on Wachovia, I am not, there are many wonderful people that work there and most of them had no idea of what was really going on. What we need is to find out who knew what when, dramatically scale back branch banking giants like Wachovia, and return to small local community banks. Those are easier to keep an eye on.

Who Wants Wachovia?

NEW YORK (CNNMoney.com) -- A bidding war for Wachovia has erupted between banking giants Citigroup and Wells Fargo, according to a published report Sunday night.

Citing people involved in the talks, The New York Times reported that the discussions come as concerns have grown about Wachovia's viability, despite a breakthrough reached Sunday by Congressional negotiators on a $700 billion bailout for the financial system.

Rumors of deal talks arose on Friday as published reports said that Wachovia was considering a deal with Citigroup (C, Fortune 500), Spain's Banco Santander (STD) or Wells Fargo (WFC, Fortune 500).

Sunday's report in The Times added that the Federal Reserve and Treasury Department were also participating in the discussions, but that the government is refusing to help bidders by guaranteeing a part of Wachovia's assets the way it did for Bear Stearns in March when it was sold to JPMorgan Chase (JPM, Fortune 500).

The government was also not ready to take over Wachovia the way it did Washington Mutual last week, The Times reported, unless its financial position deteriorates more rapidly.

Timing for a deal was not clear, and the talks could extend beyond Sunday night, The Times said.

Wachovia (WB, Fortune 500) shares were hit particularly hard on Friday - the stock lost nearly a third of its value.

Though the stock closed at $10 on Friday, Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, according to The Times.

Also unclear, The Times said, was whether the banks would bid for all of Wachovia or pieces. Wachovia's retail banking operations would help Citigroup and Wells Fargo expand their branch networks, The Times said.

Spokespeople for Citigroup, Wachovia and Wells Fargo declined to comment on Friday. A representative for Santander was not immediately available to comment.

This isn't the first time that Wachovia has been mentioned entering tie-up talks. A little over a week ago, there was rampant speculation that Morgan Stanley and Wachovia were reportedly discussing a merger. A deal between the two firms looks increasingly unlikely though after Morgan Stanley (MS, Fortune 500) agreed to sell up to a fifth of itself to Mitsubishi UFJ Financial Group (MUFG), one of Japan's largest banks, earlier this week.

Following a string of high-profile collapses of banks in recent weeks, there has been increasing speculation that Wachovia could be the next one to go.

Wachovia reported losses during the past two quarters due in large part to its exposure to U.S. mortgage market. Some analysts have cited the company's ill-timed 2006 acquisition of the California mortgage lender Golden West Financial Corp. for its current woes.

A Wachovia representative stressed in a statement on Friday that it has a "strong retail franchise and large and stable deposit base," adding that it was working to strengthen both its capital and liquidity.

Were Wachovia to enter a deal, it would mark yet another big shake up of the nation's banking industry, which has undergone a dramatic transformation in the past two weeks including the demise of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America (BAC, Fortune 500) and the failure of Washington Mutual and subsequent purchase by JPMorgan Chase.

Credit Crunch Coming?

NEW YORK (CNNMoney.com) -- Is it even harder now for businesses to get credit from banks? No question.

Does that mean that the American economy will crumble within weeks if the government's $700 billion bailout of Wall Street doesn't pass? No telling.

In the wake of last week's demise of Lehman Brothers and last-minute government bailout of American International Group, the credit markets have all but frozen. What this means for businesses is that they are having a tougher time just getting funding even for their day-to-day operations, never mind securing loans for expansion projects.

While the credit crunch is more than a year old already, two things have changed in recent weeks. First, investors have cut off a major financing source of large corporations by shying away from buying their commercial paper, or ultra short-term debt.

Also, since banks are now holding onto their money even more, they are either not extending lines of credit to companies or are instituting more onerous terms. Businesses of all sizes depend on this funding to buy supplies and inventory, make payroll and extend credit to customers while waiting for payments to come in.

Most businesses don't keep much cash on hand. They rely on banks' lines of credit to cover them until they get paid by their customers.

What does that mean for companies and their employees? Economists are divided, with some predicting dire consequences and others saying most can weather the financial storm for now.

Can't live without credit
If businesses can't access funding on reasonable terms, they will likely either raise prices or curtail their operations or both, said Ken Goldstein, economist with The Conference Board, a business research organization. This could send the economy into a tailspin as everyone from the corner bagel shop to the local hospital to the largest manufacturer suffers.

"If they're lucky they get the money, but at a much higher price, which they then pass on to you and me," said Goldstein, adding the economy could start crumbling within weeks under that scenario. "If they don't get the money, they might have to close their doors."

For each business that can't get funding, the impact is felt by many, experts said. The company may curtail credit to its customers, forcing them to pay more cash up front. It won't buy as much from suppliers or invest in upgrading its operations. And it may have to cut its workforce, or at least postpone expanding it.

Both struggling and growing companies feel the squeeze.

"Bank capital is the lubricant that allow them to run their operations," said Amiyatosh Purnanandam, assistant professor of finance at the University of Michigan. "Even a profitable company can't undertake projects because it has no money."

Demise not imminent
Other experts, however, say that most companies can get by for the time being. Credit lines, they point out, usually last for at least a year so banks can't start pulling them willy-nilly unless the terms are broken. And business can better survive a credit squeeze than a major downturn in consumer spending, which has yet to materialize.

"It's not the disaster they are making it out to be," said Amir Sufi, assistant professor of finance at the University of Chicago Graduate School of Business.

Some companies, meanwhile, are coming up with inventive ways to circumvent the funding freeze.

Take Drew Greenblatt, president of Marlin Steel Wire Products in Baltimore.

He recently asked his bank to add $175,000 to his line of credit so he could purchase steel for two large customer orders. The bank said he could get the funding, but only if he first put $175,000 into a certificate of deposit.

"We can get the money but the terms are so silly it just doesn't make sense," he said. "It's very frustrating."

So instead, Greenblatt is demanding more cash from customers in advance. Those clients with average credit ratings now have to put down a 50% deposit on their orders, whereas two months ago they didn't have to pay anything upfront.

"We're trying to make sure what's happening in the credit markets doesn't impact us," Greenblatt said. "We will be able to ratchet up sales and not have to deal with the bank."

Courtesy of CNNMoney
By Tami Luhby, CNNMoney.com senior writer
September 28, 2008: 11:15 AM ET

Wall Street Meltdown Blues

Well, it finally happened. Wall Street finally had a meltdown. This is what happens when you borrow, borrow, and borrow some more, and then put all of your eggs in one basket. Read the blog of why the option arms caught the Wall Street banks. Its time for new leadership and vision on Wall Street. Who knows what the long term effects will be. The US economy is so diversified, and this is such a small group of individuals affected, the rest of us will probably not feel anything.