With the fall of Bear Stearns, many other banks are getting a good looking at.  In an article in the Baltimore sun, the journalist Peter Morici makes some very good points about the current mortgage situation.  I quote him often here.

Mr. Morici makes it clear to us all the way things have changed over the years.  He states that 30 years ago, a borrower went to a bank, income and assets were examined by the loan officer, and if you qualified, you got your mortgage.  Today, however, it is a very different matter.  According to Mr. Morici, banks have lost touch with how business was done.  He states that “Loan agents hang around real estate offices, take applications and forward those to mortgage companies or regional banks. Those sell the notes to large Wall Street banks or securities firms that increasingly do most of the things banks do.”  Surprise, surprise.  Whoops! There went Bear Stearns.

It seems to me it all boils down to greed.  This is what has driven the market into the hole it is in now.  A quick buck is okay, but when doing so you drive the economy of one of the greatest nations in the world into the crapper, then possibly things should change?

Wall Street banks have bundled mortgages, good and bad, into securities and sold them to investors, hedge funds and pension plans.  There seems to have been little regulation in this practice, outside of who gets the biggest piece of the pie.  Now we see the Fed doing a bailout for one of the banks that got us to where we are in the first place.  Yet, the blue collar workers and unsuspecting retired people who are facing closure are hearing “sorry about your luck.”  The current proposal to help ease this situation is a fine gesture, but helps few people.  Yes, they are responsible for the hole they have gotten themselves into.  fulfilling the American Dream is not suppose to mean, though, that an unethical lender can give you a fast ride on a one way ticket to the poorhouse.  It should be that people currently in trouble should have some knowledge of what they have gotten themselves into, and if they had decided to go forward, then it was certainly their problem.  That does not, however, seem to be the case.

Now the Feds are scrambling to pull the whole economy out of the fire.  The action with Bear Stearns will probably be the first of many.  The rumblings and anxiety on Wall Street is a good indicator of that.  It really boils down to consumer confidence, doesn’t it?

According t Mr. Morici, no one now will touch a mortgage backed security with a ten foot pole.  You have to admit this is a bit understandable.  Doing so, however, puts us further in the hole, because no money is flowing.  The NBC Nightly News reported this week that consumers are depended on to provide the flow of cash in this economy to a very large percentage point.  I am thinking that if the people can see every night where the economy is going, that their shekels are going to stay under the mattress.  And then, the economy will suffer even more.  Already, major stores are reporting lack of sales, and it is trickling down to Main Street.  How much further does it have to go?  Inquiring minds want to know…

I see every day the rumble of folks all the way from Wall Street to the Hill calling for governmental intervention in help for people facing foreclosure.  Already, the Fed has provided a $30-billion short-term loan to JP Morgan Chase & Co. to facilitate its purchase of struggling Bear Stearns Company.  Even Presidential hopeful Sen. Hillary Rodham Clinton is calling for a new initiative to provide $30 billion to help homeowners.  Clinton’s campaign said in a statement that “If we can extend a $30-billion lifeline to avoid a crisis for Wall Street banks, we should extend at least $30 billion in immediate assistance to at-risk communities and families facing foreclosure.”  It does seem more than fair, doesn’t it?  Yet a bailout of people who have made poor choices is not going to sit well with taxpayers, especially at this point in our economy.

I am torn between agreeing and disagreeing.  I for one think that if we can bail out bear Stearns, then surely we can do something for all the displaced persons out there that need help right now.  The folks on the Hill had no problem bailing out Bear Stearns, yet sets tough guidelines for helping the homeowners in dire straits right now.  It hardly seems fair.

With the economy as it is, something will need to be done.  Things are going to hell in a handbasket, and very quickly.  Because I write about the mortgage market regularly, I find out things that I don’t even want to know.  Such as the scams against unsuspecting homeowners who have worked with conmen that took the money out of their equity in promise to bail them out of foreclosure, and then have disappeared.  Who is going after these bad guys, and who is keeping an eye on the Wall Street banks that are creating a comedy of errors?

I am all for private enterprise and a person making a buck.  It is the American way.  Yet when I see things happening to people as they are now, with no help forthcoming from the government, then I have to wonder just what is going on.  Certainly, they have gotten themselves into these messes.  But all the blame does not rest on their heads.  And it always looks like the people who have acted unfairly are getting away with the most.  Bear stew, anyone?

Up to 6.5 million people have been forced to consolidate their debts in the past three years in a bid to keep borrowing under control, new research* from MoneyExpert.com shows.
And 1.29 million of them have moved debts of more than £20,000 run up on loans, credit cards, store cards and overdrafts to one lender, the independent financial comparison website says.
The study shows 14 per cent of people have moved debts to one lender in the past three years and it is younger people who are most likely to have consolidated - 23 per cent of 25 to 34-year-olds have moved all borrowing to one lender.
MoneyExpert.com is urging anyone who is struggling to get their borrowing under control and to commit to cutting their debts. It has seen demand for secured loans increase significantly in the past six months. The comparison website says it has seen an 85 per cent increase in homeowner loan applications in the quarter ending January 2008 compared to the quarter ending October 2007**.
People consolidating debts of £20,000 or more are likely to be using loans secured against their house, MoneyExpert.com says.
Sean Gardner, Chief Executive of MoneyExpert.com, said: “Anyone who is juggling a range of debts with money owed on credit cards, store cards and loans should be acting to get their debts under control.
“It is encouraging that so many people have taken action as you can make significant savings by moving all your debts to one place.
“With average standard credit card rates at 17.01 per cent compared to average unsecured loan rates of 8.44 per cent it is clear that borrowers can cut their monthly interest bill by moving.
“However it is crucial that borrowers see consolidation as a wake-up call to get debts under control. It shouldn’t be something you keep on doing simply to tide you over from year to year.”
Amount owed and percentage who consolidated that amount of unsecured debt in the past three years
Up to £5,000 30%
£5,001 to £10,000 25%
£10,001 to £15,000 16%
£15,001 to £20,000 8%
£20,001 to £25,000 9%
£25,001 to £30,000 4%
£30,001 to £35,000 1%
£35,001 to £40,000 2%
£40,001 to £50,000 2%
More than £50,000 2%
MoneyExpert.com offers a unique service which enables people to find the financial products which best meet their specific needs, and which they are more likely to be successful in being accepted for. It includes exclusive research conducted by MORI, which reveals providers’ service levels. This information is married up with a financial database which lists the products suited to the customer. For the first time, people can review a product’s price, features and also the level of service offered by the provider to enable them to make a more informed choice.
MoneyExpert.com aims to demystify the complex world of personal finance, and to help inform customers of the choices available. The service can be found at www.moneyexpert.com

_{* All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,951 adults. Fieldwork was undertaken between 26th and 28th February 2008. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).
** MoneyExpert had 22,848 homeowner loan applications in the quarter Aug-Oct 2007. In the period Nov 07 to Jan 08 this increased to 42,229 applicants.}

We hear on and on, as the mess in the sub prime mortgage market continues, about relief for the people who are in a world of hurt.  I have reviewed plans and proposals here, and not one offered any real hope to those that are one paycheck away from living in the streets.  I have to think at the grass roots level, many people are as aware of this as am I, and are doing what the banks are fearful of - walking away from mortgages.  I read daily about appeals from banker who are giving sound advice to homeowners in trouble, and yet when you check out their guidelines, you see nothing there that you don’t already know - they will help if you are current on your mortgage, but if you are behind, forget it.

I understand that the banks are not willing to take a risk right now.  I am curious to see how things turn out for Bear Stearns, for example, who was highly leveraged in the sub prime market.  They of course will not be allowed to fail, even if it means a take over from a larger company, such as JP Morgan.  I have to ask myself, however, why it is that there is relief for banks such as Bear Stearns, who also made the big mistake of getting in deep with the sub prime market, yet no relief is in site for them many homeowners who are on the verge of losing their homes.  Let’s face it folks, a misguided position is just that - whether you are a blue collar worker or one of the Wall Street darlings.

Today I read about a banker in the Boston area - Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston.  His message was loud and clear to homeowners.  Call and make arrangements to insure you don’t lose all in a foreclosure.  In his article he gave the web address and phone numbers for www.MortgageReliefFund.com.  Out of curiosity, I checked out the site.  The link is here, so see it for yourself.  Their guidelines for relief?  I quote from the site: “This Fund is aimed at helping homeowners who are in good standing with their current mortgage loan(s), but who may be experiencing difficulty making payments now and who expect to have greater difficulty making payments when their rates reset.”  I have to ask myself - how many of the thousands of homeowners facing foreclosure will these apply to?  And I come up with a grim outlook - not many.

I get the distinct feeling that it is let the chips fall where they may, that is, unless you are a big Wall Street bank that is tied to a lot of fortunes.  I see no relief for the average Joe who would rather just walk away…

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HUD has proposed new legislation that would insure that lender’s paperwork is understandable and fully explained to prospective homeowners.  Although I feel that if you are making a big decision to buy a home, it is your responsibility to know what you are getting yourself into.  Anyone, unless you are a lawyer, that has tried to wade through the legalese of any lender documents knows what I am talking about.  The proposal also encourages borrowers to shop around for the best available deal.

Although I have to take this with a grain of salt, housing officials said borrowers’ confusion about loan terms and closing costs has contributed to the current mortgage crisis.  Certainly, it hasn’t helped, but I fail to believe that this is the cause.  If a person is making this big of an investment, the least thing that they should do is to take a lawyer with them to the closing table, so that there are no surprises.  Leaving nothing to chance would go a long way to prevent being hornswaggled.  I honestly think that it is not the paperwork, but the lenders themselves who have created this mess.  If lenders throw out a rate of say, 2 or 3% to an unsuspecting buyer, then chances are good that the person, unless well in the know, will jump at it.  Over the course of a loan’s lifetime, a lot of money would be saved.  Oh, did we tell you about the resets?

Transparency in lending practices would have gone a long way in preventing the current mortgage market debacle.  Yes, a person should know about closing costs, and all charges tied to the loan, and know it upfront.  With every bank I have ever dealt with, a statement has been giving outlaying the terms and conditions of the loan, what charges would be, and all necessary conditions before I signed a thing.  Reading this statement has always been clear cut and readily understood.  I did, however, get a peak at what has happened in the market when I bought my current commercial property.  I dealt briefly with a company that showed all signs of a classic scam, and was a hair’s breadth from signing until I did my due diligence.  Such things as modifying our income to reflect a higher rate was mentioned, and I was asked to sign paperwork before it was filled out for the sake of expediency.  I am truly thankful that I didn’t go with this company, for I would be now in the same position as so many other people are.

Here are some of the things HUD proposed:

1.  Disclose the terms of the loan, along with all interest rates, payment, penalty for early pay off, etc.

2.  Display settlement charges prominently, including fees paid for outside services.  Anything that is extra is brought to the table.

3. Require lenders to reveal what they pay mortgage brokers.

4.  Require a “closing script” that would be read at the closing table, insuring everyone understands the terms of the loan.

Prospective home buyers should not need a degree in finance to be able to go to the closing table and understand what is going on.  In the wake of all that has happened, I once again must say “a day late and a dollar short.”