THE CHIP LAKE BLOG

Today, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages.  This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive.  Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed. 

• This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes.    

This Act Is A Good Step To Address The Housing Market, But Congress Has More Work To Do

Congress needs to complete work on responsible legislation modernizing the Federal Housing Administration (FHA).  This bill will give FHA the necessary flexibility to help hundreds of thousands of additional families qualify for prime-rate financing. 

Congress needs to pass legislation permitting State and local governments to help troubled borrowers by issuing tax-exempt bonds for refinancing existing home loans.  Under current law, cities and States can issue tax-exempt bonds to finance new mortgages for first-time homebuyers. 

Congress needs to pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae.  GSEs provide liquidity to the mortgage market that benefits millions of homeowners, and it is vital that they operate safely and soundly. The President has called on Congress to pass legislation that strengthens independent regulation of the GSEs and ensures they focus on their important housing mission. 

The Administration Has Moved Forward On Targeted Actions To Assist Homeowners That The President Announced In August

The President and his Administration have launched a new initiative at the Federal Housing Administration (FHA) called FHASecure.  FHASecure expands the FHA's ability to offer refinancing by giving it the flexibility to work with homeowners who have good credit histories but cannot afford their current payments.  By the end of 2008, the FHA expects this program to help more than 300,000 families refinance their homes.

Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson have assembled the private-sector HOPE NOW alliance.  HOPE NOW recently mailed hundreds of thousands of letters to borrowers falling behind on their payments and is supporting a toll-free mortgage counseling hotline, 1-888-995-HOPE.

• HOPE NOW has developed a plan under which up to 1.2 million homeowners could be eligible for assistance.  The HOPE NOW plan will help subprime borrowers who can afford the current, starter rate on a subprime loan, but would not be able to make the higher payments once the interest rate goes up. 

To read the whole story: http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

Countrywide Fast Facts

Countrywide Under Fire

There have been many stories about Countrywide in the media as of late. One of the most recent was a New York Times article exposing some of the dirtier secrets of the mortgage giant.

Former employees of Countrywide told the Times that the mortgage company's commission structure rewarded the selling of high-cost, risky loans. Example: Brokers received a $30,000 commission on $1 million pay option ARM loans that carried a 3-year penalty.

'The whole commission structure in both prime and subprime was designed to reward salespeople for pushing whatever programs Countrywide made the most money on in the secondary market,' a former sales representative told the New York Times recently.

In addition to steering borrowers towards bad loans, Countrywide has also been charged with making borrowers pay exorbitant loan fees, paying sales reps more than twice as much for selling a subprime loan versus a prime loan, and giving out loans to people who could not afford them.

But it isn't just former employees who are spilling the beans on Countrywide's practices; advocacy groups have jumped on the bandwagon as well, and one of them is even accusing the mortgage company with being 'the worst lender' during the boom.

'In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,' said Ira Rheingold, executive director of the National Association of Consumer Advocates. 'And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.'

U.S. Senator Charles Schumer, who serves on the Senate Banking Committee, also recently asked Countrywide in a very public fashion to do something about their lending practices.

'I am calling on Countrywide, as our nation's largest lender, to bury its bad business practices and reverse some of the damage it has already inflicted on our housing market,' the New York Democrat said.

Countrywide Responds

In an interview with Business Week, published August 29, CEO Angelo Mozilo responded angrily to the criticisms that have recently been made against his own person as well as Countrywide, telling reporter Maria Bartiromo that as far as he is concerned, the press is losing credibility.

'I've seen article after article that have absolutely no basis in fact, but there's nothing anybody can do about it,' Mozilo said. 'The press can say anything it wants without retribution.'

In the interview, Mozila indicated that he takes offense to the recent New York Times article that accuses his company of predatory lending practices, and says that Countrywide has never steered borrowers towards higher-cost mortgages if they could have qualified for lower ones under traditional standards.

Mozilo also responded to claims that Countrywide was a main driver of the mortgage boom.

'Remember, we didn't reach out to home buyers. They came to us,' Mozilio said. 'And as prices went up and interest rates were at a palatable level, we began to tailor programs to see if we could assist these people in getting into homes.'

This, however, is a point that can be argued against. If you haven't seen a number of different Countrywide TV ads touting various mortgage products over the last couple of years, then you don't watch very much TV.

Of course, the television isn't the only media outlet that has been utilized. The mortgage company is also one of the biggest Internet advertisers out there, accounting for 12.5 percent of the money doled out by the top ten spenders.

Netratings recently estimated that Countrywide spent $34.8 million on Internet advertising alone last month. In comparison, Nielsen/NetRatings estimates that all of the mortgage companies combined spent $378 million on Intenet display ads over the first six months of 2007.

If nothing else, it makes you wonder what planet Mozilio is from. Because on earth, all of that advertising money falls under the category of 'reaching out to home buyers'.

Some information collected from a Post on "Housing Bubble News"

New Mortgage Rate: ???

Who knows? The Fed's key rate is merely a short-term target rate. Just because policymakers cut this rate, it doesn't mean lenders will follow suit and lower mortgage rates on 30-year fixed rate mortgage loans. Last week, the average mortgage rate was 6.31 percent. What it will be next week is anyone's guess.

Winners: Banks, Real Estate Agents, and Builders

Let's assess the true beneficiary of this rate cut: Wall Street and the financial institutions that bet the house on subprime/ARM loans.

Wall Street has been rallying around a fed cut for awhile now. When the Fed's move was announced yesterday, the Dow Jones industrial average soared, posting the biggest one day point gain in over four years.

'It was everything the market had been begging for for weeks -- and more,' said Richard A. Weiss, chief investment officer at City National Bank in Los Angeles.

Investors and banks are certainly in a begging position at this point. Surging defaults have shaken the security of everyone who has a stake in the subprime market. Investors and banks alike have been backing off.

In a statement, the Fed admitted the cut was intended to get lenders to ease the credit-freeze and begin lending again, as tight restrictions have 'the potential to intensify the housing correction and to restrain economic growth more generally'.

But banks and investors weren't the only ones rejoicing at the news yesterday. Agents and builders were also buoyed. Lower rates mean the possibility of more buyers. In an interview with Bloomberg, the CEO of mega-giant homebuilder Toll Brothers joyfully proclaimed that 'Our boy has righted the ship'.

It is obvious why builders, agents, banks, and investors are happy right now with Fed chairman Ben Bernanke and his 'boy wonder' antics, but it is important to remember that not everyone is a winner when the Fed makes a rate cut.

Losers: Savers, Mortgage Borrowers, and the U.S. Dollar (In Other Words, Everyone Else)

Responsible savers will see a negative impact on interest earnings as a result of the Fed rate cut. Short-term CDs will no longer pay off like they once did.

A slashed rate could have a negative effect on borrowers from a long-term standpoint as well. Long-term mortgage rates (like those for 30-year fixed rate loans) are not set by the Fed, but rather the marketplace itself. When investors worry about inflation (which is what the Fed should be worrying about) long-term interest rates go up.

If investors are concerned the rate cut will increase inflation pressures in the near future (which they are) long-term interest rates could go up and put the housing market in an even worse bind.

There is also a chance that banks won't even pass the short-term savings on to borrowers. The rate cut gives banks the opportunity to play catch-up. Greedy lenders and other lenders who are trying to rebuild their financial standing will probably not be in a hurry to lower interest rates.

If there was a big loser in all of this though, it would have to be the U.S. dollar. The dollar fell to a record low against the euro, and tumbled in comparison to several other currencies when the Fed made the announcement.

In short, the Fed's decision was irresponsible. Bernanke has shown that he is no better than Greenspan. If our policymakers continue to follow this path, you can kiss the value of your hard-earned money goodbye.

Research information collected from efinancedirectory by CHIP LAKE