Posted by Rick Stine
on March 29, 2010
, Credit Crisis
, Wall Street
It’s all about the risk, stupid.
You want to grab these bank executives around the shoulders and shake some sense into them, especially after reading about their latest efforts to hold off any reform aimed to prevent another financial crisis like the one we just went through.
Today’s WSJ has an article that explores the different moves here and overseas to tax banks. The idea is to raise money that can be used to bail them out in the future, rather than use taxpayer money to do so, if any crisis comes upon us.
Predictably, the banks are crying foul. A trade group cautions the wisdom of a tax because it would remove capital from the banking system – capital that then couldn’t be lent.
Posted by Gren Manuel
on March 16, 2010
, Consumer Finance
The U.K.’s biggest mortgage lender is wanting its money back.
Certainly that’s one possible message of the ads that appeared in the U.K. papers this morning from Lloyds TSB, a unit of Lloyds banking Group PLC, which has about a quarter of the U.K. mortgages on its books.
Lloyds is advertising that “Now’s a great time to reduce how much you owe on your mortgage” because of low interest rates. To help nudge homebuyers along it’s doubling the size of mortgage overpayments that can be made without incurring penalties on variable rate mortgages.
Posted by Rick Stine
on February 26, 2010
Here’s a staggering statistic mentioned in Fannie Mae’s just released financial results – nearly 1 out of every four residential properties in the U.S. (24%) today has negative equity because the value of the homes are less than the mortgages against them. What that likely means is any rebound in housing prices will be slow at best. If homeowners with negative equity wal away from their obligations, forced home sales will tilt the supply-demand balance of homes in favor of supply, as in too much of it. Thus the continued pressure on housing prices.
And of course this isn’t good news for a company that holds a lot of these mortgages. Fannie Mae reported a 4Q loss of $16.3 billion, an improvement over the loss of $19.8 billion a year ago. Things are so bad at Fannie that it asked for an additional $15 billion from the Treasury just a few weeks ago. All of this comes on the same day that another government-owned company, AIG, posted staggering losses as well.
How bad is the outlook for Fannie? It says in its filing that it can’t be certain about its long-term sustainability (in other words, it may not be around.) And it says that the dividend payments it will have to start paying the Treasury for giving it money (via preferred stock investments) will be so large that the company will have to borrow from the Treasury to pay the Treasury those dividends. The question isn’t what the long-term sustainability of Fannie Mae is but how long can the Treasury sustain a situation like this.
The U.S. Treasury just pumped another $3.79 billion into GMAC Financial, the struggling finance company that is now majority owned by you and me. GMAC got itself into a financial pickle by getting too heavily involved in the mortgage business and in particular, the subprime mortgage business.
As part of the cash infusion today, the company also reclassified some mortgage assets it hopes to sell. And to pretty those assets up for sale, GMAC took additional write offs on some of those assets. But a rough, back-of-the-envelope calculation makes one wonder if these assets have been written down enough.