Receiving Wide Coverage ...

State of the Union: During the (surprisingly brief) discussion of the housing mess in his speech last night, President Obama announced yet another mortgage refinancing program. “Responsible homeowners” could take advantage of low rates and save $3,000 a year without having to jump through bureaucratic hoops or deal with “runaround from banks,” he said. And if you coughed or sneezed at the precise moment, you might have missed this: “a small fee on the largest financial institutions” would pay for this program. Subsidizing these refis “will give banks that were rescued by taxpayers a chance to repay a deficit of trust,” Obama said. Zing! The president gave no other details on the refi plan, but the Times got the goods, or some of them, from an anonymous “senior administration official”: The program would cost no more than $10 billion. (How many of “the largest” banks would share that cost? The top four? The Big 19 TARP recipients? Unclear.) FHA is to guarantee the new loans. Unlike the revamped HARP program, which is available only to homeowners whose existing mortgages are held by Fannie and Freddie, the new plan (should it be called HARP 3.0 or HARP 2.5?) could benefit two to three million people whose loans are owned by private investors, the Times reports. Legislation would be required to allow FHA to refi the underwater mortgages and to authorize the bank fee. Notably, the president did not utter the word “foreclosure” once in his speech. New York Times, Businessweek, Associated Press, Washington Post (op-ed by economist Mark Zandi), Wall Street Journal.

Meet UMOSA: To be fair, even though he didn’t say the f-word, or allude to the perennially “imminent” Foreclosuregate settlement, Obama did prominently mention the mortgage mess. In fact, the second biggest piece of news for banks from the State of the Union address was the creation of “a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.” The Huffington Post broke the news that Eric Schneiderman, the New York attorney general, has been tapped to lead this task force, which will be called the “Unit on Mortgage Origination and Securitization Abuses.” Schneiderman is one of a handful of state AGs who have balked at the proposed multistate settlement with the top mortgage servicers over foreclosure abuses, fearing the deal will let the banks off the hook too easily. Hence “his presence atop this new special unit could give it immediate legitimacy among those who have criticized the president for being too hesitant in going after the banks and resolving the mortgage crisis,” the Huffington Post writes. But the announcement doesn’t bode well for a resolution of the settlement talks, Felix Salmon writes on his Reuters blog. “After all, there’s no point in setting up a new investigation to hold banks accountable, if we’re about to see a settlement which prevents any law-enforcement body from doing that. So expect the status quo to continue, probably through 2012: banks with huge contingent legal liabilities hanging over their heads and their stock prices, and the government holding back on prosecutions as it attempts to cobble together a global settlement. It’s a recipe for uncertainty and gridlock and banks hoarding their money rather than lending it out.” Huffington Post, Washington Post, Financial Times, New York Times.

Wall Street Journal

An article compares the fourth-quarter results of two regional banks, Keycorp and Regions. Keycorp stayed in the black and benefited from the rebound in manufacturing in the North, while Regions posted a loss as its Southeast markets lagged other parts of the country in recovering from the economic downturn. “Both banks continued to report a reduction in total assets, a drop in revenue and a decline in the profit margin in the lending business. Both reported fewer delinquent loans. And both reported strong demand from corporate customers for new loans” — but the rate of loan growth at Keycorp was double that at Regions.

Financial Times

Freddie Mac plans to sell securities this year that would pay a higher yield than the GSE’s usual mortgage-backed issues, in return for which the investors would agree to eat the first losses on the underlying loans. It might be a cash bond, it might be synthetic, but either way the deal would transfer credit risk normally borne by Freddie to the private markets. The synthetic scenario in particular sounds like the MODERNS (Mortgage Default Recourse Notes) transaction Freddie did in the late 1990s. The FT story raises the question of whether investors will want to take on this exposure in the current market, and at what price. Quoth a JPMorgan Chase executive: “When we see the prices where investors are willing to take the ‘first-loss’ risk, it will just exacerbate the difference between the public and the private markets.” (Did he mean to say “elucidate the difference…”?) If our memory serves us correctly, the lowest-rated tranche of the MODERNs deal was priced to yield a comically wide spread, something like 1,000 basis points, over LIBOR. (Yes, we know, we need to get a life.)

Washington Post

Speaking of Mark Zandi, he has a second op-ed in the Post, this one weighing in on a recent debate over the history of events leading up to the crisis. The headline sums up where he stands on the question: “Fannie and Freddie don’t deserve blame for bubble.” We’d prefer to qualify that; the GSEs, which indirectly fueled subprime lending by buying the AAA tranches of private label securitizations, and eventually joined the mortgage industry’s race to the bottom in their whole-loan businesses, surely deserve some blame. Just not all of it. Still, it’s refreshing to see another reality check on the oversimplified “Fannie and Freddie caused the crisis” narrative that continues to infect the national conversation about What Went Wrong. The blog Deus Ex Macchiato recently said it well: “The Crisis was caused by a complex interaction between the design of various element of the financial system and the incentives of various parties within it. Blaming Fannie for the crisis is like [blaming] Woodrow Wilson for the second world war. Sure, he might have had something to do with it, but other things were happening too…”


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