Mortgage deal closer
With a deadline looming today for state officials to sign onto a
landmark multibillion-dollar settlement to address foreclosure
abuses, the Obama administration is close to winning support from
crucial states that would significantly expand the breadth of the
deal. The biggest remaining holdout, California, has returned to
the negotiating table after a four-month absence, a change of
heart that could increase the pot for mortgage relief nationwide
to $25 billion from $19 billion. Another important potential
backer, Attorney General Eric T. Schneiderman of New York, has
also signaled that he sees progress on provisions that prevented
him from supporting it in the past. The potential support from
California and New York comes in exchange for tightening
provisions of the settlement to preserve the right to investigate
past misdeeds by the banks, and stepping up oversight to ensure
that the financial institutions live up to the deal and
distribute the money to the hardest-hit homeowners.
The settlement would require banks to provide billions of dollars
in aid to homeowners who have lost their homes to foreclosure or
who are still at risk, after years of failed attempts by the
White House and other government officials to alter the behavior
of the biggest banks. The banks — led by the five biggest
mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo,
Citigroup and Ally Financial — want to settle an investigation
into abuses set off in 2010 by evidence that they foreclosed on
borrowers with only a cursory examination of the relevant
documents, a practice known as robo-signing. Four million
families have lost their homes to foreclosure since the beginning
of 2007. If banks fall short of the multibillion-dollar
benchmarks set out for principal reduction and other benefits for
homeowners, they will have to pay the difference plus a penalty
of up to 40% directly to the federal government, according to Mr.
Madigan. The settlement, if all states participate, will also
include $3 billion to lower the rates of mortgage holders who are
current. Banks will get more credit for reducing principal owed
and helping families keep their homes, and less for short sales
or taking losses on loans that were likely to go bad, like those
that were severely delinquent.
102% tax?
James Ross, 58, is a founder and managing member of Rossrock, a
Manhattan-based private investment firm that focuses on
commercial real estate and distressed commercial mortgages. “I
realize I am very fortunate, and in fact I am a member of the
1%,” Mr. Ross wrote in an email. His résumé is studded with
elite institutions: Yale, Columbia Law School and stints at the
law firms Cravath, Swaine & Moore in New York, and Holland & Hart
in Denver. Since his company fits the category of private equity,
he has even carried interest. Yet Mr. Ross told me that he paid
102% of his taxable income in federal, state, and local taxes for
2010. “My entire taxable income, plus some, went to the
payment of taxes,” Mr. Ross said. “This does not include real
estate taxes, sales taxes, and other taxes I paid for 2010.”
When he told friends and family, they were “astounded,” he
said.
That doesn’t mean Mr. Ross pays more in taxes than he earns.
His total tax as a percentage of his adjusted gross income was
20%, which is much lower than mine. That’s because Mr. Ross
has so many itemized deductions. Since taxable income is what’s
left after itemized deductions like mortgage interest, charitable
contributions, and state and local taxes are subtracted, it will
nearly always be smaller than adjusted gross income and
demonstrates how someone can pay more than 100% of taxable income
in tax. Mr. Ross must hope that his interest expense will pay off
down the road and generate some capital gains. Still, all of Mr.
Ross’s itemized deductions are money out of his pocket, which
is why he’s had to draw on his savings to pay his taxes. Robert
Willens, a tax expert and New York attorney, made the argument
that taxable income, therefore, may be a better basis for
measuring the tax burden. Mr. Ross’s plight illustrates
something that came through in nearly every response and cuts
across nearly all income levels: The disparities of the tax code
don’t just pit rich against poor or middle class. It taxes
people within the same income brackets at grossly unequal rates.
“I cannot help but reflect on the unfairness of the current tax
regime,” Mr. Ross wrote. “Why should I pay 102% of my taxable
income in taxes when others, with far greater wealth than mine,
pay a fraction of that?”
Bulk sales begin soon
The government is starting to shed foreclosed, single-family
homes it owns -- by selling them in bulk to investors, who would
turn them into rental properties. Officials, however, are saying
only that test sales will occur "in the near-term" with a focus
on the areas hardest hit by foreclosures. They declined to
comment beyond a news release they issued. The test comes after
the government in summer 2011 asked for proposals on what to do
with more than 90,000 foreclosed properties it then held. The
government typically sells foreclosed properties one at a time,
but officials specifically asked for ways to move homes in bulk
because of the size of the backlog. About 4,000 groups or
individuals submitted ideas on how the government could unload
the properties. After The Enquirer filed a Freedom of Information
Act request, the government released a list of 423 companies,
groups and individuals that submitted responsive proposals, but
no details on their proposals.
The test sale of the foreclosures and conversion of them into
rental housing is being supervised by the Federal Housing Finance
Agency (FHFA). The agency has acted since 2008 as the federal
conservator for Fannie and Freddie, which are public companies
although they were created by Congress. In a news release
Wednesday, the finance agency said "Fannie Mae will offer for
sale pools of various types of assets including rental
properties, vacant properties and non-performing loans" under the
test. It also asked investors to pre-qualify to participate in
the test. The investors will be required "to rent the purchased
properties for a specified number of years." FHFA officials hope
the rental period will "provide relief for local housing markets
that continue to be depressed by the volume of foreclosed
properties, and provide additional rental options to certain
markets."
To qualify, investors will have to show the financial wherewithal
to buy the assets, sufficient experience and knowledge to bear
the risks and manage of the investment and agree to "keep certain
information about the REO (real estate) and related matters
confidential." Nationwide, the 83,000 homes currently up for
sale and potential conversion into rental units are among more
than 200,000 foreclosures of all kinds that the government holds,
apparently making it the nation's largest owner of foreclosed
properties. The 200,000 is almost a third of foreclosed
properties across the nation. Moving the backlog would get them
off the books of the Federal Housing Administration. It also
would clear the books of Fannie Mae and Freddie Mac, which buy
mortgages, bundle them and then sell mortgage-backed securities
to investors. The FHA, Fannie and Freddie became owners of the
properties as hundreds of thousands of owners defaulted on their
mortgages during the real estate meltdown. Clearing the backlog
would limit the loss to taxpayers, who already have bailed out
Fannie and Freddie at a cost of $169 billion and counting. The
losses are expected to total $220 billion to $311 billion by the
end of 2014, according to latest projections in December by the
Federal Housing Finance Agency.
Greece misses another deadline
Greece let yet another deadline slip on Monday for responding to
painful terms for a new EU/IMF bailout, as German Chancellor
Angela Merkel made clear Europe's patience is wearing thin over
drawn-out negotiations among its feuding political leaders.
Failure to strike a deal to secure the 130 billion euro ($170
billion) rescue risks pushing Athens into a chaotic debt default
which could threaten its future in the euro zone. Merkel turned
up the heat, saying Athens had to come to terms with the "troika"
of lenders - the European Commission, European Central Bank and
IMF - to get the funds it needs to meet big debt repayments in
March. Greek political leaders, positioning themselves for a
likely general election in April, have baulked at accepting
another package of deeply unpopular wage and pension reductions,
job cuts and tougher tax enforcement measures.
US Treasury prices pared gains notched in today's European
session that were a response to the lack of a political agreement
in Greece to make reforms necessary to avoid default. Limiting
gains, traders are preparing for the government's quarterly
refunding auctions, which will include sales of 10-year notes and
30-year bonds . Yields on 10-year notes, which move inversely to
prices, fell 1 basis point to 1.92%. "Treasurys are modestly
higher as discord among Greek coalition members over the terms of
the second bailout raises the threat of default and has sent the
euro and European stocks lower," said bond strategists at RBS
Securities. "We have a very quiet week of economic data up ahead
and the market's focus will be on the Treasury refunding auctions
which begin tomorrow."
New FHA standards increase Ginnie Mae risk
The Federal Housing Administration's (FHA) recently announced
plans to tighten its standards for approving lenders will
increase prepayment risks for investors who own Ginnie Mae-back
securities, say analysts at Barclays Capital. The agency's plans
to eliminate the consideration of a lender's compare ratio when
deciding whether to streamline-refinance its loans will
accelerate refinancing activity, they say, causing higher
prepayment speeds, and, in turn, reduce investor profits. The
compare ratio is the serious delinquency rate of all loans
originated by a lender during a two-year period relative to the
average of all lenders operating in the same region. Higher
coupon and seasoned loans have a weaker credit and greater
default risks, therefore, streamline-refinancing them could lift
ratio passed 150%. And if it does, the lender could lose the
ability to originate FHA-backed loans. The change is part of a
larger attempt by the FHA to protect its Mutual Mortgage
Insurance Fund, which many say is in danger of requiring a
multibillion dollar government bailout.
Disregarding a lender's compare ratio calculation creates an
incentive for streamline-refinancing higher-risk borrowers,
analysts say. This will speed up Ginnie Mae prepayments,
particularly on higher coupons and pre-2009 originations since
these have the worst credit quality. "That said, we expect the
effect on speeds to be modest," they say. "We believe that this
plan will be implemented and has the potential to raise GNMA
speeds by a few CPR." The effect should be even less for
pre-2010 vintages because their much better credit quality
suggests they have not been constrained by the compare ratios.
Data from the Department of Housing and Urban Development (HUD)
suggest that the compare ratios of most national lenders are now
significantly below the 150% threshold. In December, HUD
Secretary Shaun Donovan, said as a result of an October analysis
by an independent actuary of FHA's insurance fund, HUD plans to
announce how it will address premium prices in its fiscal year
2013 budget proposal. Since then, Congress has enacted a 10
basis-point increase to the FHA annual
mortgage-insurance-premium, and President Barack Obama has called
on the FHA to shoulder a larger role in helping responsible home
owners and the housing market. "Given the circumstances, we
think more changes to the FHA program could be in the works, and
since the budgetary proposal should be released over the next few
weeks, the timing is peculiar," they said. "Therefore, Ginnie Mae
faces heightened risks in the near term."
With a deadline looming today for state officials to sign onto a
landmark multibillion-dollar settlement to address foreclosure
abuses, the Obama administration is close to winning support from
crucial states that would significantly expand the breadth of the
deal. The biggest remaining holdout, California, has returned to
the negotiating table after a four-month absence, a change of
heart that could increase the pot for mortgage relief nationwide
to $25 billion from $19 billion. Another important potential
backer, Attorney General Eric T. Schneiderman of New York, has
also signaled that he sees progress on provisions that prevented
him from supporting it in the past. The potential support from
California and New York comes in exchange for tightening
provisions of the settlement to preserve the right to investigate
past misdeeds by the banks, and stepping up oversight to ensure
that the financial institutions live up to the deal and
distribute the money to the hardest-hit homeowners.
The settlement would require banks to provide billions of dollars
in aid to homeowners who have lost their homes to foreclosure or
who are still at risk, after years of failed attempts by the
White House and other government officials to alter the behavior
of the biggest banks. The banks — led by the five biggest
mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo,
Citigroup and Ally Financial — want to settle an investigation
into abuses set off in 2010 by evidence that they foreclosed on
borrowers with only a cursory examination of the relevant
documents, a practice known as robo-signing. Four million
families have lost their homes to foreclosure since the beginning
of 2007. If banks fall short of the multibillion-dollar
benchmarks set out for principal reduction and other benefits for
homeowners, they will have to pay the difference plus a penalty
of up to 40% directly to the federal government, according to Mr.
Madigan. The settlement, if all states participate, will also
include $3 billion to lower the rates of mortgage holders who are
current. Banks will get more credit for reducing principal owed
and helping families keep their homes, and less for short sales
or taking losses on loans that were likely to go bad, like those
that were severely delinquent.
102% tax?
James Ross, 58, is a founder and managing member of Rossrock, a
Manhattan-based private investment firm that focuses on
commercial real estate and distressed commercial mortgages. “I
realize I am very fortunate, and in fact I am a member of the
1%,” Mr. Ross wrote in an email. His résumé is studded with
elite institutions: Yale, Columbia Law School and stints at the
law firms Cravath, Swaine & Moore in New York, and Holland & Hart
in Denver. Since his company fits the category of private equity,
he has even carried interest. Yet Mr. Ross told me that he paid
102% of his taxable income in federal, state, and local taxes for
2010. “My entire taxable income, plus some, went to the
payment of taxes,” Mr. Ross said. “This does not include real
estate taxes, sales taxes, and other taxes I paid for 2010.”
When he told friends and family, they were “astounded,” he
said.
That doesn’t mean Mr. Ross pays more in taxes than he earns.
His total tax as a percentage of his adjusted gross income was
20%, which is much lower than mine. That’s because Mr. Ross
has so many itemized deductions. Since taxable income is what’s
left after itemized deductions like mortgage interest, charitable
contributions, and state and local taxes are subtracted, it will
nearly always be smaller than adjusted gross income and
demonstrates how someone can pay more than 100% of taxable income
in tax. Mr. Ross must hope that his interest expense will pay off
down the road and generate some capital gains. Still, all of Mr.
Ross’s itemized deductions are money out of his pocket, which
is why he’s had to draw on his savings to pay his taxes. Robert
Willens, a tax expert and New York attorney, made the argument
that taxable income, therefore, may be a better basis for
measuring the tax burden. Mr. Ross’s plight illustrates
something that came through in nearly every response and cuts
across nearly all income levels: The disparities of the tax code
don’t just pit rich against poor or middle class. It taxes
people within the same income brackets at grossly unequal rates.
“I cannot help but reflect on the unfairness of the current tax
regime,” Mr. Ross wrote. “Why should I pay 102% of my taxable
income in taxes when others, with far greater wealth than mine,
pay a fraction of that?”
Bulk sales begin soon
The government is starting to shed foreclosed, single-family
homes it owns -- by selling them in bulk to investors, who would
turn them into rental properties. Officials, however, are saying
only that test sales will occur "in the near-term" with a focus
on the areas hardest hit by foreclosures. They declined to
comment beyond a news release they issued. The test comes after
the government in summer 2011 asked for proposals on what to do
with more than 90,000 foreclosed properties it then held. The
government typically sells foreclosed properties one at a time,
but officials specifically asked for ways to move homes in bulk
because of the size of the backlog. About 4,000 groups or
individuals submitted ideas on how the government could unload
the properties. After The Enquirer filed a Freedom of Information
Act request, the government released a list of 423 companies,
groups and individuals that submitted responsive proposals, but
no details on their proposals.
The test sale of the foreclosures and conversion of them into
rental housing is being supervised by the Federal Housing Finance
Agency (FHFA). The agency has acted since 2008 as the federal
conservator for Fannie and Freddie, which are public companies
although they were created by Congress. In a news release
Wednesday, the finance agency said "Fannie Mae will offer for
sale pools of various types of assets including rental
properties, vacant properties and non-performing loans" under the
test. It also asked investors to pre-qualify to participate in
the test. The investors will be required "to rent the purchased
properties for a specified number of years." FHFA officials hope
the rental period will "provide relief for local housing markets
that continue to be depressed by the volume of foreclosed
properties, and provide additional rental options to certain
markets."
To qualify, investors will have to show the financial wherewithal
to buy the assets, sufficient experience and knowledge to bear
the risks and manage of the investment and agree to "keep certain
information about the REO (real estate) and related matters
confidential." Nationwide, the 83,000 homes currently up for
sale and potential conversion into rental units are among more
than 200,000 foreclosures of all kinds that the government holds,
apparently making it the nation's largest owner of foreclosed
properties. The 200,000 is almost a third of foreclosed
properties across the nation. Moving the backlog would get them
off the books of the Federal Housing Administration. It also
would clear the books of Fannie Mae and Freddie Mac, which buy
mortgages, bundle them and then sell mortgage-backed securities
to investors. The FHA, Fannie and Freddie became owners of the
properties as hundreds of thousands of owners defaulted on their
mortgages during the real estate meltdown. Clearing the backlog
would limit the loss to taxpayers, who already have bailed out
Fannie and Freddie at a cost of $169 billion and counting. The
losses are expected to total $220 billion to $311 billion by the
end of 2014, according to latest projections in December by the
Federal Housing Finance Agency.
Greece misses another deadline
Greece let yet another deadline slip on Monday for responding to
painful terms for a new EU/IMF bailout, as German Chancellor
Angela Merkel made clear Europe's patience is wearing thin over
drawn-out negotiations among its feuding political leaders.
Failure to strike a deal to secure the 130 billion euro ($170
billion) rescue risks pushing Athens into a chaotic debt default
which could threaten its future in the euro zone. Merkel turned
up the heat, saying Athens had to come to terms with the "troika"
of lenders - the European Commission, European Central Bank and
IMF - to get the funds it needs to meet big debt repayments in
March. Greek political leaders, positioning themselves for a
likely general election in April, have baulked at accepting
another package of deeply unpopular wage and pension reductions,
job cuts and tougher tax enforcement measures.
US Treasury prices pared gains notched in today's European
session that were a response to the lack of a political agreement
in Greece to make reforms necessary to avoid default. Limiting
gains, traders are preparing for the government's quarterly
refunding auctions, which will include sales of 10-year notes and
30-year bonds . Yields on 10-year notes, which move inversely to
prices, fell 1 basis point to 1.92%. "Treasurys are modestly
higher as discord among Greek coalition members over the terms of
the second bailout raises the threat of default and has sent the
euro and European stocks lower," said bond strategists at RBS
Securities. "We have a very quiet week of economic data up ahead
and the market's focus will be on the Treasury refunding auctions
which begin tomorrow."
New FHA standards increase Ginnie Mae risk
The Federal Housing Administration's (FHA) recently announced
plans to tighten its standards for approving lenders will
increase prepayment risks for investors who own Ginnie Mae-back
securities, say analysts at Barclays Capital. The agency's plans
to eliminate the consideration of a lender's compare ratio when
deciding whether to streamline-refinance its loans will
accelerate refinancing activity, they say, causing higher
prepayment speeds, and, in turn, reduce investor profits. The
compare ratio is the serious delinquency rate of all loans
originated by a lender during a two-year period relative to the
average of all lenders operating in the same region. Higher
coupon and seasoned loans have a weaker credit and greater
default risks, therefore, streamline-refinancing them could lift
ratio passed 150%. And if it does, the lender could lose the
ability to originate FHA-backed loans. The change is part of a
larger attempt by the FHA to protect its Mutual Mortgage
Insurance Fund, which many say is in danger of requiring a
multibillion dollar government bailout.
Disregarding a lender's compare ratio calculation creates an
incentive for streamline-refinancing higher-risk borrowers,
analysts say. This will speed up Ginnie Mae prepayments,
particularly on higher coupons and pre-2009 originations since
these have the worst credit quality. "That said, we expect the
effect on speeds to be modest," they say. "We believe that this
plan will be implemented and has the potential to raise GNMA
speeds by a few CPR." The effect should be even less for
pre-2010 vintages because their much better credit quality
suggests they have not been constrained by the compare ratios.
Data from the Department of Housing and Urban Development (HUD)
suggest that the compare ratios of most national lenders are now
significantly below the 150% threshold. In December, HUD
Secretary Shaun Donovan, said as a result of an October analysis
by an independent actuary of FHA's insurance fund, HUD plans to
announce how it will address premium prices in its fiscal year
2013 budget proposal. Since then, Congress has enacted a 10
basis-point increase to the FHA annual
mortgage-insurance-premium, and President Barack Obama has called
on the FHA to shoulder a larger role in helping responsible home
owners and the housing market. "Given the circumstances, we
think more changes to the FHA program could be in the works, and
since the budgetary proposal should be released over the next few
weeks, the timing is peculiar," they said. "Therefore, Ginnie Mae
faces heightened risks in the near term."
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