My Perspective

This just in: House Rejects $700 Billion Bailout Bill 

“The House of Representatives failed to pass a $700 billion bill to purchase troubled mortgage assets from financial institutions as two-thirds of Republicans voted against the bill and Democrats could not muster enough support to push it over the top. The final vote was 205 for passage and 228 against the bill. A close vote on the Bush administration plan was expected. However, the measure is very unpopular back home with constituents and lawmakers were reluctant to vote for such a huge package that critics painted as a bailout for Wall Street firms and banks that profited and later got into trouble because of reckless subprime mortgage lending. The Senate was expected to pass the Emergency Economic Stabilization Act if approved by the House.” … and here I was getting ready to fly back to Washingston DC an pick up MY $21,959.42 RESCUE check !

I learned on the news a few minutes ago, the first draft of what may be the new Government ‘rescue’ plan, is now available to review before they vote on it, making it Law. I downloaded it to my hard drive and tried to post it all here … to punish you :-} … the Blog software wouldn’t accept its 106 pages … I’m persoanlly hopeful that they’ll BAIL ME OUT to the tune of $21,959.42 that “I” have lost through this credit crisis ….

If you were one of the people that missed our September Master Seminar series web-seminars, don’t worry – we have four (4) of them scheduled for October. You’ve still got plenty of time to reserve your slot. All of our Upcoming Events are lised in one place on our website, so you can find a time and date that fits your busy schedule. I, on the other hand, have no time it seems these days, even though I’m up at 5AM glued to the Fox Business News on the TV for 2 hours before breakfast (so I can get smart); now I have to completely re-write the outlines I planed on utilizing for the October webinars … think can you guess the main topic? TARP of course, and how it will effect us every day folks in the residential real estate mortgage lending industry, right here on Main Street USA.

One of the commentators on the news was saying this crisis is like a house on fire, and it wasn’t struck by lightening, it was arson from within … a witty remark I thought …. made me think of this (new Fannie/Freddie requirement with all appraisals on and after January 1, 2009 when Mortgage Brokers can no longer order real property appraisals … a google earth view of the property as well as the other traditional photos).

These are some historic times which all of you in our industry will not soon forget; I myself remember the S&L crisis of the 1980’s like it was just last week, and this is Much much bigger than that.

If you are on the origination/production side of the residential real estate mortgage lending industry yourself, you may very well know the sort of individuals who can help with this mess.

The single biggest issue facing the Treasury Secretary and all those that will vote to make his proposal (as modified) into Law over the next couple of days is … HOW to value those TOXIC assets.  Although that is merely the first step, which will be followed by who and how to ‘hold’ them, the ‘wisdom and timing’ necessary to off-sell them at a later date, plus the ‘re-regulation of the oversight’  that we all saw was lacking the past several years (we don’t need any new laws – what we need is ENFORCEMENT AND AGGRESSIVE PUNISHMENT of wrong-doers who violate any of the 253 laws that regulate our industry already) … all of those challenges and others, will have different skilled player needed, so those tasks can go relatively smoothly … but back to Today … WHO’S the sort of individuals the TARP people will need to leap over this first hurtle?

Lower, mid-level, and administrative supervisors – those who have been in the trenches – who have been in residential mortgage underwriting for most of the past 10+ years (definately since before the Aug ‘98 correction) and those with residential mortgage servicing employment during this same period, are the exact types that will be needed to work and guide those who are attempting to Value those Assets, so a sensible number can he offered to sellers and backed up by the locic of knowing the facts at the level of the people I encourage the TARP folks to engage.

If you know people like these, I strongly encourage you to influence them to make contact with their Congressional representatives, send their Resumes in, and follow through so they get considered as resources of Country needs to help get us all out of this mess ….

I spent a few minutes on the phone yesterday with the former Chairman & CEO  (J. Livingston Kosberg) of First Texas Savings, a firm my company did a great deal of business with, before they were the biggest part of the ‘Southwest Plan’ (the Government’s first big step with the RTC) in the late 1980’s during the Savings & Loan crisis. We were talking about the serious challenges and opportunities that are facing our industry today; he acknowledged several high-powered investors he knows there in the Houston and Dallas areas, are putting together some serious capital to help with this mess, I asked him to pass alog my name to any of them who might need somebody who’s long experienced and knowledgable about the residential real estate mortgage lending industry from the ground up … maybe something will develop up from that conversation … I’ll keep you posted.

Along another track, this morning I spent time with one of the sharpest young men in the biz (who I’ve known for more than 25 years) and we talked about the ANTIDOTE to those TOXIC assets. Both Dave and I agree, there will be many Wall Street type experinced bean-counters needed to get through to the end of this $700 Billion problem. HOWEVER, like we’ve seen before, frequently decisions are made by ‘big-shots’ without all the necessary facts to draw sound conclusions. Both he and I are hopeful, when the people are selected to actually analyze the underlying individual loan’s situation, and the likelyhood for a worthwhile recovery if the subsequent sale of the real estate becomes necessary, that they engage expereinced and knowledgable mortgage people to not only hire the right kind of individuals to do much of the leg work once the bean counters think they’re done, but wise enough to make sound determinations as to the likely value today of those (plug in buzz word of the day here) TOXIC assets after reviewing all the relevant and available facts.

We’re living through some interesting times in our industry. First, the passage of Public Law No. 110-289 was a very good idea, it will help a wide-cross section of Americans in so many ways (I translated it from Lawmaker/legislator back into English over a 3 week period right here in my Blob during August in case you don’t want to read the seven inch stack of paper containing all the words in that legislation); it enabled the subsequent take-over (and a $200 Billion cash injection) of Fannie & Freddie which was long overdue (gotta straighten them out, they both been plagued with scandal and ‘looting from within’ for a decade), and THAT keep the CEO’s of Fannie & Freddie from leaving with Big severance packages (they tried to get out of town with $25 Million, but 110-289 stopped that – YEA!); because of the heavy risk AIG has in insuring-backing many mortgage instruments (CDO’s, MBS, etc.), they would have made a much bigger mess in our economy had they failed, they were/are too important to fail (plus all the Government did was make them a BIG [well secured/collateralized] loan). Given what’s been happening in the credit markets, all of this was necessary … today’s $700 Billion capital markets stability deal (TARP?) Hank Paulson is trying to put together (once the ‘pricing issue details’ are clear) will make capital flow once again (in a lot of places here and abroad),  but especially in the mortgage finance sector (that’s been choking lately) … and THAT’S real good for homeowners and everybody in our industry. We’ll get through this, and then on to long over-due regulatory reform.

Troubled Assets Relief Plan (TARP) is what I heard they’re going to call it, from the people at Fox Business News just about 15 minutes ago.

To put this into simple terms this morning (add the zeros as you like) … if a Bank owned one $500,000 home loan, that had an appraisal of $500,000 10 months ago, and originally gave out a no money down 100% financing ‘reckless’ no doc or stated loan) plus if this borrower hasn’t paid one penny …  that TOXIC loan (as I understand it) will be eligible for the TARP people to buy from the Bank (since it’s surely $$$$ in jeopardy and the Bank’s facing a serious loss), and I hear they’ll pay the Bank somewhere between $50,000 to $100,000 for the sale and purchase of that loan.

If that’s correct (because details are unavailable this moment), and IF “I” owned that bank, I would probably not sell that loan to TARP. Why you ask? Because I would know the likely value of the real estate collateralizing that loan today (here in CA probably somewhere around $350,00 or so); therefore I would take that into REO, sell it and take a loss of $150,000 (plus unearned interest income and expenses along the way). A total number far less that $400,000 to $450,000 if TARP stepped up! … I clearly need more details to give you my educated opinion ( I DO see several other pluses for the Bank, the Borrower and TARP … but the logic to sell escapes me this early today).

Well, as I read this so far, it looks good to me!  What I think we all need to realize, as we calm down and think this through thoroughly; Hank is the sort of fellow with the knowledge and experienece to actually get this done, unlike many previous governement people I have seen attempt to write and impliment laws, regulations etc … he KNOWS this securities arena at its core, probably better than I know the mortgage industry :-}

One part I like a lot is this section: “It would give Treasury Secretary Henry Paulson sweeping power to hire managers and award contracts to private companies without review by courts or government agencies.”

I have a very good idea … maybe he should consider hiring Americas MoneyCenter, Inc. (that’s US!) to help make some of this happen … I know we could help his people find their way :-}

I wonder HOW I get his attention, so he’ll consider us? 

Here’s what I have been able to uncover so far:  One news report says: “The Treasury Department is asking lawmakers for broad authority to purchase and hold up to $700 billion worth of illiquid mortgage assets. In draft legislative language sent to Capitol Hill, which was obtained by American Banker, Treasury is asking for power to buy — and later sell — any residential or commercial mortgage asset originated before Sept. 17.” 

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

‘Fannie Mae is increasing its net-worth requirements for approved seller/servicers to ensure that its business partners are capable of fulfilling their obligations, the company has announced. The secondary-market agency is also establishing new minimum capital requirements for banks, thrifts, and other customers. “Fannie Mae is imposing additional requirements to protect itself against the material and adverse impact of rapid declines in a lender’s net worth,” Fannie says in its announcement 08-23. Effective Dec. 31, the minimum net worth requirement is $1.6 million for approved seller/servicers add $2.5 million for new lenders seeking Fannie Mae approval, plus 0.25% of the outstanding principal balance of the lender’s portfolio of loans serviced for Fannie. All approved lenders must meet the minimum $2.5 million net worth starting Dec. 31, 2009. “Approved seller/servicers will have until June 30, 2009, to comply with the increased lender’s adjusted-net-worth requirement,” Fannie says.’

I saw this news article yesterday morning, before today’s MAJOR news story, and it made me recall THIS is the Good Housekeeping Seal of Approval, make no mistake about it. My Point? I aspired to this level personally for my own company for many years, when we finally got the Big OK, it was the most exciting career thing that ever happened to me! (to be fair though – the GSE’s were ONLY at $1Million back then) … so YOU too should aspire to it!! THAT’S MY POINT — You Can Do it!