1. Immediate FHA assistance for people who are already 90 days down. Does this mean "up to 90 days down," "at least 90 days down," or what? Waiting to offer refi assistance until borrowers are in the foreclosure process isn't likely to make them want to go find the friendly neighborhood loan officer to do an FHA refinance. And by then, they've got a big chunk of past-due payments (not to mention possibly a prepayment penalty) to roll into the new loan. However,

2. We can't offer more proactive assistance to those who look like they're ready to default but haven't gotten there yet, because apparently after all this time we still need some more task forces. I'm guessing that we're still working on how the "more favorable rates" become available when the FHA insurance premium has to be raised and investors aren't exactly crushing each other in the rush to buy these loans.

3. But if you've already lost your home to foreclosure or short sale, you might get a tax break. This will "keep people in their homes" by making it less expensive for them to give up their homes. Or something.

• Scenario 1. The Economist Intelligence Unit’s central forecast, to which we
attach a probability of 60%, sees the impact being contained by timely monetary
policy action, with only a modest effect on the global economy.
• Scenario 2. Our main risk scenario, with a 30% probability, envisages the
US falling into recession, with substantial fallout in the rest of the world.
• Scenario 3. Should the US enter recession, another, darker scenario arises:
that corrective action fails, and severe economic repercussions cascade from the
US into the world economy with devastating effect. We attach only a 10%
probability to this outcome, but the potential impact is so severe that it warrants
careful consideration.

Originators then took these loans – many of which should have been assessed as much riskier than they were – and packaged them into securities to sell to investors. If there had been full disclosure, smart and careful investors would have judged that these mortgage backed bonds carried a disproportionately high level of risk. In an effort to deliberately mislead investors, however, some originators and credit-rating agencies, so-called Nationally Recognized Statistical Rating Organizations (NRSROs), colluded. First, the credit-rating firms would consult, or maybe we should say collaborate, with the originators – receiving high fees, of course – to advise the originators how to design the packaged securities to ensure that the riskiest piece of the product was adequately masked. Then, for another fee, the credit raters would assign overly favorable ratings to these mortgage-backed bonds, giving investors the impression that a neutral, unbiased party with a proven track record of assessing risk thought highly of these volatile products.



Essentially, the originators and credit raters shoved enough pigs and laying hens in with the beef herd that investors expecting prime ribs on their silver platter and money in their pocket ended up with pork ribs on their paper plate and egg on their face. The credit-rating firms were double-dipping; profiting first from helping to put these shady securities together, and then collecting fees for deliberately rating these risky products at a higher value than they were worth. It’s like hiring a judge to advise you as to how to commit an act and then paying him to decide whether you have committed a crime. My strong view is that NRSROs conspired with financial institutions to fool investors by packaging and rating securitizations in a manner that was deliberately aimed at misleading them. This is the accounting firm telling shareholder companies how to fool their investors and then getting hired as independent auditors.



That's not the free market at work. That's fraud. Fraud is a crime, not a correction.

In a letter to McFall's committee on Wednesday, BoE Governor Mervyn King warned that providing short-term liquidity to the financial markets while they were experiencing trouble served to encourage "excessive risk-taking and sows the seeds of a future financial crisis".

"The provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises."

since the U.S. dollar supply outside the U.S. has increased from $600 billion in 1990 to over $6 trillion today? By the way, it has been said that money expansion should occur at approximately the same rate as inflation. Given that the U.S. Federal Reserve targets inflation at 2% -3% a year, then in 17 years, money supply outside the U.S. should have grown from $600 billion to about $913 billion. Somewhere along the line, the Feds happened to grow money supply by $5,087,000,000,000 too much (perhaps, if you are a dollar holder, you now understand why today, your U.S. dollar seems to buy you nothing, whether in London, Montreal, Paris, or Singapore. [from the source in the last post - B]

By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy. He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war, justify torture or protect corrupt contractors.
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So there are three problems. But Mr. Paulson’s plan — or, to use its official name, the Hope Now Alliance plan — is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending.

The plan sets voluntary guidelines under which some, but only some, borrowers whose mortgage payments are set to rise may get temporary relief.

This is supposed to help investors, because foreclosing on a house is expensive: there are big legal fees, and the house normally sells for less than the value of the mortgage. “Foreclosure is to no one’s benefit,� said Mr. Paulson in a White House interactive forum. “I’ve heard estimates that mortgage investors lose 40 to 50 percent on their investment if it goes into foreclosure.�

WaMu: Skip customers; save the execs

As mortgage holders face foreclosure and shareholders take a bath, troubled Washington Mutual takes action -- to protect executive bonuses. It could be a trend.

After CEO Kerry Killinger and other top executives missed all or a big part of their bonus pay last year, Washington Mutual wasted little time taking steps to apparently make sure it won't happen again -- even if the mortgage market and the company remain in the tank.

The board decided in February to use different performance yardsticks that could make it look like Killinger and other top executives were doing great jobs -- and all but ensure them millions of dollars in bonuses for 2008.

Those huge losses piling up because of subprime loans and foreclosures? At bonus time, the bank will ignore them.

"I would love to be able to do that," says Judy Lederman, a single mom in Scarsdale, N.Y., who won't be able to ignore the financial consequences of a potential foreclosure. She recently lost her job as a regional public-relations manager for a major retail chain. Washington Mutual handles her mortgage."I'm stupefied at the prospect of losing my home and scared stiff of the financial implications," she says.

Changing the rules
She'll be held to the rules in her mortgage agreement. Washington Mutual execs will collect bonus pay under new, easier-to-satisfy rules:

Bonuses are now linked to achievements like growth in retail banking fees. That hardly seems a strenuous hurdle given the way ATM and other bank fees are rising.

Executive bonuses will be doled out for squishy achievements such as improvements in customer loyalty.

When the bank does use traditional metrics like profitability, it won't count the impact of mortgage losses and foreclosure costs.
...

For countries like Ireland, where prices were even more inflated than in the United States, it has been a painful education, as homeowners learn the American vocabulary of misery. “We know we’re already in negative equity,” said Emma Linnane, a 31-year-old university administrator. She bought a cozy, one-bedroom apartment in the Dublin suburbs with her fiancé, Paul Colgan, in May 2006, at the peak of the market. They paid $575,000 — at least $100,000 more than it would fetch today. “I sometimes get shivers thinking about it,” Ms. Linnane said, “but I’ll let the reality hit me when I go to sell it.”

"The urban locations are still quite strong," said Bob Melvey, whose research shows King County is a buyer's market, Seattle on the buyer's end of a balanced market and North Seattle on the seller's side. Stacey Brower, said she sees strong demand for affordable homes in the North End of Seattle, up to 100th Street. "If it's clean and livable under $400 (thousand), it moves pretty quick," she said.

Tax Policy and the House Price Bubble

The bursting of the recent house price bubble has focused attention on the failures of monetary and regulatory policy. However, tax policy also likely played a role by providing tax subsidies that contribute to a cult of home ownership. This policy is flawed. However, it is politically difficult to change because households see the benefits of tax subsidies and higher house prices but do not recognize the accompanying costs. By showing the downside of high prices, the housing bust provides an opportunity to escape this political trap.

Current tax law exempts capital gains on private homes up to $500,000 and treats mortgage interest as a deduction. Both measures are intended to help middle-class families, yet the reality is they distort the economy, are costly, and likely do little to make working families better off. That speaks for changing housing’s tax treatment.

The mortgage interest deduction is extremely expensive, costing the Treasury approximately eighty billion dollars in 2007. Moreover, it is highly regressive because high-income taxpayers get to deduct their interest payments at top marginal tax rates, whereas others deduct at lower tax rates. That means high-income taxpayers get a higher subsidy rate, and their subsidy is further increased because they also tend to have larger mortgages. Meanwhile, many poor workers get no housing assistance because they rent and rental expenses are non-deductible.

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.

"Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds...