Fannie Mae, Freddie Mac Make Moves to Help Consumers
The Fed’s recent moves to lower interest rates aren’t really making a dent in the tsunami of credit woes U.S. consumers are facing. Some economists call the lower Fed Funds rate a tax on the middle class, as this increases inflation, driving the dollar down and raising the price of oil. It’s more like driving a stake into the heart of the middle class.
But as the Fed stands by, fiddling a love song to banks and a swan song to consumers, the U.S. Office of Federal Housing Enterprise Oversight (HEO) made a move. The HEO, which oversees Fannie Mae and Freddie Mac, relaxed the two agencies’ capital requirements so they could pump $200 billion of financing for home loans to consumers.
The mandatory cash reserves Fannie and Freddie are required to carry, about $20 billion between the two, will be cut by about 33 percent under the plan, part of a broader strategy to ease the credit crisis that is making it tough for both consumers and businesses to borrow. The goal is to make money available so new home buyers can take out loans, and home owners facing mortgage interest rate resets can refinance into more affordable mortgages. This is the third step by the HEO to enable the two agencies to take up more of the burden in the mortgage market.
Last month’s $168-billion economic stimulus package included a temporary increase in the cap, from $417,000 to $729,750 in high-cost markets, on mortgages that the companies can purchase or guarantee. And a few weeks ago, the HEO freed Fannie and Freddie of a combined $1.5 trillion cap on their mortgage-investment holdings. Call it a reward for filing timely financial statements following multibillion-dollar accounting scandals.
The HEO estimates these three moves should allow Fannie and Freddie to purchase or guarantee roughly $2 trillion in mortgages this year. They now hold about $4.9 trillion in home-loan debt. So while the middle class consumer may be staked through the heart (thanks Fed!) and barely staying afloat while riding the wave of credit woes, at least the HEO is stepping up.
(1 votes, average: 4 out of 5)
Loading ...Average Joe Asks Fed to Wake up and Smell the Economy
Wake up and smell the economy. At least that’s what the Chief Executive Barista of Starbucks Howard Schultz said Wednesday to about 6,000 shareholders at Starbucks’ annual meeting in Seattle, according to a report on Bloomberg News.
“You have an economy that really is in a tailspin, and many would say the consumer is in a recession,” Schultz was quoted as saying. “We are dealing with things that we haven’t seen before in terms of how people are responding to how tough it is.”
As the country’s prime caffeinator, Schultz sees the economy from a unique perspective. As consumers cut spending, Starbucks experienced its smallest gain in two years–a revenue rise of 17 percent. Its customer base has also dropped for two consecutive quarters.
I guess that as spiraling prices at the gas pump take more and more of a chunk out of consumers’ wallets, and the housing slump ripples into other sectors of the economy, more and more people are going without those lattes and cappuccinos.
Schultz told shareholders, “We began to see a slowdown in traffic that we believed was economy-driven. As we look at the balance of calendar ‘08, I don’t see any reason to believe that we’re going to see a change.”
But Starbucks aficionados who have been decaffeinating cold turkey don’t need to worry much longer: Schultz said Starbucks will introduce a rewards program in mid-April. Customers can earn free syrup or milk alternatives for their drinks, or free refills on brewed coffee if they use their Starbucks card.
This is on top of last month’s deal by which Starbucks Card holders get two hours of free wireless Internet access a day. Free wi-fi and nearly free coffee is a lot more than what the Fed is offering the average American, according to a report I saw on CNN’s Money.com. Despite cutting the Federal Funds rate to 2.25 percent, the Fed is not helping homeowners as the slumping housing market continues to take a toll on homeowners.
Despite the nearly rock bottom interest rates, banks are still not lending money. As banks cut themselves off from the crack cocaine of loose and easy borrowing to build up cash, consumers are caught in the middle.
Peter Cohan of Peter S. Cohan Associates, a venture capital firm, said lowering the Fed Funds rate is like a tax on the middle class because this drives up inflation, bringing the dollar down, and raising the price of oil “almost immediately and squeezing the middle class.”
I guess a lower Fed Funds rate and a quarter will just about get you a cup of coffee nowadays.
(1 votes, average: 5 out of 5) Loading ...Fighting Banks to Save Homes from Foreclosure
By Jim Perez,
DebtHelp, Inc. Staff Writer
The best defense is a good offense.
Or at least says Carl von Clausewitz, an 18th century Prussian soldier and military historian.
But does this also pertain to fighting to keep from losing your home to the bank through foreclosure?
Yes, say some consumer rights groups.
And in the United States, one way to fight foreclosure is:
Sue.
Yes, folks, truly It’s a Wonderful Life, and you can sue the Mr. Potters of your own private movies.
Consumer rights groups and legal-aid lawyers are joining forces with private lawyers to get a day in court for borrowers who, through shoddy underwriting practices, got loans they had little chance of repaying and, in many cases, shouldn’t have gotten in the first case.
These consumer advocacy lawyers say they aim to prove lenders granted fraudulent or “unconscionable” loans with terms skewed heavily in their favor, or to fight abuses by servicers, such as phony fees that cause homeowners to default.
Borrowers who go this route get the chance to not only stop foreclosures and rescind the loans, but to seek damages for abuses, in some cases
The number of lawyers specializing in consumer rights is small, and with the growing number of foreclosures, many are booked solid.
Melissa Huelsman, a Seattle lawyer who has focused on wrongful-foreclosure litigation since 2001, says her caseload has doubled in the past year.
Bill Purdy, a Soquel, Calif., lawyer, takes this approach. He first looks for violations of federal statutes such as the Truth in Lending Act, a 1968 law that requires disclosure of key terms of the loan and its costs. “There are tons of illegal loans out there, but nobody’s looking,” he says.
Most cases settle out of court. But courts in West Virginia and California have been most friendly to suits against lenders and servicers, says Margot Saunders of the National Consumer Law Center, which assists attorneys in such suits.
Check the National Association of Consumer Advocates for a list of attorneys specializing in lender/servicer abuses, or call your local legal-aid office or bar association.
But caveat emptor: In some cases, borrowers who lose a suit may get saddled with fees for the lenders’ attorneys.
(No Ratings Yet) Loading ...GOP Senator Floats Last-gasp Home Rescue Scheme
By Jim Perez,
DebtHelp, Inc. Staff Writer
U.S. Sen. Norm Coleman,of Minnesota, is floating a plan to help homeowners who are facing foreclosure.
Called the HomeOwners Mortgage Emergency Act, the Republican’s Ponzi scheme would allowhomeowners to withdraw up to $100,000 from their retirement accounts withoutpaying any penalties or taxes. They could use the money to pay any latepayments and fines.
At first blush, the proposal sounds good.
If you’re sinking I guess any flotation device lookspromising.
But reading between the lines, the flotation device mayactually be the rock that drags a homeowner down for the third time.
Borrowers would have to repay the money back in three yearsor have a tax lien placed on their home for the taxes and withdrawal penaltiesthat were initially set aside.
One of the other factors not mentioned is that many familiesfacing foreclosure secured those homes with subprime loans.
According to the CongressionalBudget Office, most of those families may not actually have those retirementaccounts from which Coleman is so graciously allowing them to draw.
The CBO found that only 42 percent of people earning between$40,000 and $80,000 contribute to a 401(k), and just 10 percent contribute toIRAs. For those earning below $40,000 a year, the percentages are even lower.
These are the very families the subprime lenders preyed, Imean focused on.
If these families had the means to save in the first place,they would not be facing foreclosure now.
Of course Coleman’s plan doesn’t hold mortgage lendersaccountable for bad behavior.
The late Edward Gramlich, a Federal Reserve official, wrote that”the subprime market was the Wild West. Over half the mortgage loans weremade by independent lenders without any federal supervision.”
Coleman doesn’t want a government bailout of homeowners.Rather, he wants the government to allow the banks to be able to raid the 401(k)sof homeowners, which they cannot currently do in the case of a bankruptcy.
If a homeowner declares bankruptcy, as many in foreclosure arelikely considering, retirement accounts are off limits.
Coleman’s scheme is a way for banks to strip every lastasset from homeowners before taking their house.
And as most politicians are so willing to do, Coleman isdancing with those who brought him tothe dance: According to the Centerfor Responsive Politics, as of June 2007, Coleman had received campaigncontributions totaling $1,069,649 from the securities and investment, realestate and commercial bank sectors.
I won’t even mention that retirement accounts – for thosewho do have them – should be left for retirement.
Of course, if Coleman and the rest of the GOP cabal havetheir way, the middle class won’t retire: We’ll all be working at Wal-Mart tosupplement our privatized Social Security that they invested in hedge funds forus.
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno.
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