I’m shocked.  I’m not sure why, exactly, but I am.

GM to sell healthy assets to a Government run company, bad assets will go into bankruptcy.

General Motors Corp’s (GM.N) plan for a bankruptcy filing involves a quick sale of the company’s healthy assets to a new company initially owned by the U.S. government, a source familiar with the situation said on Tuesday.

The government’s plans include giving stakes in the new company to GM’s union and bondholders, although the ownership structure of the company is still being negotiated, said the source who is familiar with the company’s plans.

In addition, the government would extend a credit line to the new company and forgive the bulk of the $15.4 billion in emergency loans that the U.S. has already provided to GM, the source said.

This is – for me – this is exactly what everyone was saying would happen to the banks: nationalization.  I believe this is a poor move and sets the standard for everything moving forward.

Just simply let them go under!

If you think back several weeks with me, you’ll remember the the Treasury announcing a “bank stress test” that would help determine what banks had enough liquidity to stay functional.  Former Bank regulator, William Black, believes it’s a sham in order to make the public believe the government is taking action:

There are no real stress tests going on. 

If you did a real stress test, as Geithner explained them, you wouldn’t just have a $2 trillion hole — you’d impose regulatory capital requirements of 50%…

You can’t conduct a meaningful stress test without reviewing (sampling) the underlying loan files and it seems likely that the purchasers of securitized instruments (not just mortgages) do not even have the loan file data…

As Geithner describes the process, NO ONE can conduct reliable “stress testing.” It inherently requires testing everything in every way any and all aspects of everything could conceivably interact. It also doesn’t provide any meaningful output that can be operationalized (unless you want to force an enormous rise in minimum regulatory capital requirements, which he obviously doesn’t want to do).

A number of other economists also question the point of the stress test.  The general feeling was that the “worst case” economic scenarios that were used in the stress test did not even come close to recreating the conditions the financial industry really will be facing.

If, indeed, the stress test was a sham AND the economic scenarios used during the test do not reflect reality, what does it mean that the U.S. Government is going to delay the stress test results until AFTER the earnings season that just started in order to prevent a market panic.

To me, this really means three things:

1. Even under the easy standards set in the stress test some financial institutions cannot pass the test
    
2. The government is looking to buy time in order to develop a plan for the banks that are insolvent
    
3. If the plan for insolvent banks is nationalization, the Treasury Secretary expects the stock market to react in a highly negative manner.
    

With the Alcoa news this week, the Fed Meeting Minutes showing the recovery will be longer off than expected and the release of TARP funds to Life Insurance companies today, what does it mean to hear the Treasury is planning on delaying the bank test results?  

Easy.  The worst of the worst is not even upon the financial market as of yet….

The automotive maker report yet another horrific month of sales.

U.S. auto sales fell 37 percent in March, a smaller-than-expected drop that encouraged hope the world’s largest car market is nearing a bottom after a freefall that has pulled the industry into a deepening crisis.

Break down the numbers:

• GM sales were down 45%
• Ford Down 41%
• Chrysler and Major Japanese Automakers down 36% to 39%

Of the current conditions, an S & P analyst said:

“We believe we may be at or near the trough of the industry’s year-to-year comparisons but do not see an uptick in industry demand before (the fourth quarter) at the earliest,”

Just to point out, this is the third month in a row that someone from S & P has stated we are at or near the industry year-to-year bottom. I guess they are following the theory that if one says it enough it will come true.

Update – 11:09 PM: For perspective, take a look at the sales numbers from Jan 09.  The latest numbers are far worse for GM and Ford. So much for finding a bottom, huh?

GM – also known as Government Motors – ask for ANOTHER 2.6B from the government

General Motors looks to be heading toward bankruptcy… a “controlled” bankruptcy… backed by taxpayer funding. 

Aside from the fact that GM obtained Billions from the government simply to stay alive this far into 2009, they still have the balls to ask for EVEN more money but this time they are playing the “clean technology” card.

General Motors Corp has asked for $2.6 billion of low interest government loans to support the development of three new hybrid vehicles, according to a business plan update released on Wednesday.

GM’s loan request, which would help develop two spinoffs from its all-electric Chevrolet Volt, raises to $10.3 billion the aid it is seeking under a U.S. Energy Department program designed to support development of fuel-efficient vehicles.

It will be interesting to see if the Department of Energy approves the loans or not. At this point it has become virtually impossible to even form a guess as to what is going to happen next in the automotive industry.

ADP Unemployment Report

Friday the U.S. Department of Labor is expected to announce the NonFarm Payroll report. While economists are predicting a loss of 670,000 jobs, ADP, one of the largest payroll company in the world, release actual number on Wednesday for the month of March – 742,000

Where will the unemployment rate under up this month? We are already 8.1% but with such a large number of layoffs in the month of March, I’m guessing we will be up to 8.5%… maybe a bit higher.

With no end in sight to the layoffs I still suspect the U.S. economy will see a recorded rate of unemployment of 10% by the end of the year.

Even thought it is spring, I sit here and look outside and the sky have a fall feel to it.  I would also expect to see people walking around with cider, going to Halloween festivals, planning for Thanksgiving and the like… but it’s not.  

I’m sitting here having the stew that I made the other day, the smell of cinnamon faintly in the air, all of which helps bolster the feeling of autumn.  I’m shocked to say the stew tastes FANTASTIC today.  That is to say, this is a dish that actually tastes amazing after sitting for a day or so. 

Technical aspects of the site.

Yesterday evening, one of my reader asked that I add a subscription feature to the comments on the site.  This is something I’ve wanted to do for some time but for some reason the plugin I install malfunctions.  

What happens is this…

The plugin ends up placing the “subscription” option at random places on the post page and it changes each time I attempt to active the plugin.  I am not sure if this is a problem with the plugin OR with the template I am currently using. Oddly enough, this behavior takes place no matter what template I use which would make me think there is an issue with the framework I’m using.

I’m attempting to resolve this issue so please hold tight as I try to figure this out.

GM, Chrysler and the Government

With Wagoner out at GM, it looks like the Government is laying down the law…. and the funding that will be provided is VERY limited.

Obama, flanked by several administration officials at the White House, announced a short-term infusion of cash for the firms, and said it could be the last for one or both.

Chrysler, judged by the administration as too small to survive, got 30 days’ worth of funds to complete a partnership with Fiat SpA, the Italian manufacturer, or some other automaker.

GM got assurances of 60 days’ worth of federal financing to try and revise its turnaround plan under new management with heavy government participation. That would involve concessions from its union workers and bondholders. The administration engineered the ouster of longtime CEO Rick Wagoner over the weekend, an indication of its deep involvement in an industry that once stood as a symbol of American capitalism.

First, I am surprised by the announcement because it now appears the government is pushing automakers toward bankruptcy.  In my mind I had expected some negative news on Chrysler today, and while 30 days of funding is not at lot, it’s more than I had expected. The big surprise for me was that General Motors only obtained 60 days of funding.

Last evening, I made the statement the government actions were socialist. I stand by those claims.  Now the U.S. government is providing warranty coverage for GM and Chrysler products.  The American Automotive makers are, essentially, under government control.  

The “One A Day” pill to cut the risk of heart issues?

I am very skeptical of Big Pharma.  As more evidence come to the surface, it is becoming clear  drug companies are more concerned with creating drugs that help their own bottom line – not helping people address their medical issues.

So, please understand how view this story with skepticism:

The experimental combo pill was as effective as nearly all of its components taken alone, with no greater side effects, a major study found. Taking it could cut a person’s risk of heart disease and stroke roughly in half, the study concludes.

The approach needs far more testing — as well as approval from theFood and Drug Administration, something that could take years — but it could make heart disease prevention much more common and more effective, doctors say.

How much will this cost?

$17 a month.

While this may seem trivial, this is HUGE business, and potentially political, news:

The Obama administration asked Rick Wagoner, the chairman and CEO of General Motors, to step down and he agreed, a White House official said.

On Monday, President Barack Obama is to unveil his plans for the auto industry, including a response to a request for additional funds by GM and Chrysler. The plan is based on recommendations from the Presidential Task Force on the Auto Industry, headed by the Treasury Department.

The White House confirmed Wagoner was leaving at the government’s behest after The Associated Press reported his immediate departure, without giving a reason.

From the business perspective.  

While GM has been under the mismanagement of Wagoner & Co. for some time, I find it extremely unlikely that the current administration would call for the CEO’s resignation if they did NOT intend to provide some for of funding/financing to the company, even if said financing is for a short period of time.  

Bottom line – expect the Government to provide some form of a lifeline to General Motors on Monday.  Maybe not a full-blown bailout but some form of assistance with heavy restrictions on how the money will be utilized. 

What you don’t see in the press this evening (well, now this morning) is any mention of Chrysler.  Since the Fiat partnership has fallen onto hard times, it seems as if things have become very grim for the company.  If I were a betting man, and I think I am, I would guess that some form of Bankruptcy is in the offing for the home of Jeep and Dodge…unless they can pull together something quickly.

From the political perspective.

The United States is officially a socialist country.  I know that sounds VERY extreme so ignore your initial thoughts on what socialism is and hear me out.  

Socialism is political idea that supports government (“the state”) ownership and management of companies.  

How else can one describe the state telling a PUBLIC company what it must do in order to obtain something?  Yes, banks can do so as conditions of a loan but the U.S. government is not a bank.  Interestingly enough, no bank is even willing to give GM or Chrysler loans… because their business model has failed…. because financial institutions, as messed up as they are, know that extending credit or funding to these members of the auto industry equates to a poor business decision.

In the end…

The Administration decided to take a very, very dangerous path if they continue to push for recovery without Bankruptcy and if they are truly calling the shots within the automakers.

For almost 5 months now, I’ve continually said the total bailout price for the Automakers will be well above the requested $17.4B.  Based on information readily available in SEC filings, public statements on what automakers expect in sales volume, as well as documented labor agreements, it was painfully obvious GM and Chrysler executives were being overly optimistic – if not simply full of crap.

Steven Rattner, the Chief auto advisor for the administration, stated that both General Motors and Chrysler may need significantly more than the previously requested funding amount.  While Rattner did not say what the total cost may add to, this is a significant announcement as Rattner is the individual who will recommend if one, or both, car companies should file for bankruptcy.  

The task force will give its “sense of direction” by March 31, Rattner said. The companies have received $17.4 billion since December and asked for the additional $21.6 billion in aid last month, an amount that depends on achieving turnaround plans that are “somewhat ambitious,” Rattner said.

“It could be considerably higher, I won’t deny that,” Rattner said, when asked whether U.S. aid sought could rise. “Like all management teams they tend to take a reasonably, slightly perhaps, optimistic, view of their business. So it could be more, I can’t rule that out.”

Obviously, Rattner has some experience with the politics of business.  He was careful to pick his words about both companies and their management, while not giving a significant sense of what may come next.  I suspect he knows how the situation will unfold, he simply cannot show his hand in public as of yet.

I believe GM and/or Chrysler should seek bankruptcy – I’m not going to continue to beat that drum over and over on my blog – but let me simply point one thing out.  If the government had intentions of allowing bankruptcy to occur, why would they just approve a $5 billion bailout of the auto suppliers?

Just asking.

Ah, Sunday… Usually Sundays are usually relaxing for me as they are the middle of my weekend (I have three day weekends) Monday, however, I have a 4 hour meeting that I need to attend in the office so it’s back to a two day weekend… and I feel the stress building up a bit.  Alas..

A second bailout?

I need to understand something that is currently be discussed in politics and business circles.  Why would a second stimulus bee needed at this point?  

I’m not suggesting that another stimulus would be needed in the future, but what action has taken place thus far was not even a stimulus.  It was a $787 Billion dollar black hole.  At this point, luckily, Nancy Pelois say that no second package is coming in the short term:

yesterday that a second economic stimulus package is not “in the cards” in the short term, disappointing those seeking another quick infusion of federal money into the struggling economy. 

I also believe that there would be no political support to pass a second package right now.  There is major public backlash with everything thus far (AIG, Banks), another bailout would enrage the public even more.

The press is giving Joe Biden a hard time over the “F” word?

I think people tend to focus on the wrong things in life.  Take this bit of “news” coming out of ABC.

At an event at Union Station today where Vice President Joe Biden was heralding the $1.3 billion in investments in rebuilding train stations and passenger rails, a microphone picked up one of the former senator’s myriad Senate colleagues addressing him, formally, as “Mr. Vice President.”

That met with Vice President Biden’s standard reply.

“Gimme a f*&$#ing break,” he said, apparently unaware that the microphone was on. 

The individual, while correct in addressing Mr. Biden as “Mr. Vice President”, is a long time friend of Biden.  This helps explains why Biden responded the way he did – there was a long time, personal, connection… they guys are friends. Let’s not focus on something that everyone has said at some point or another.  

Not important.  Not news.  Move on.

Sunday night viewing

I’m a fan of HBO’s Big Love but apparently Mormons are not.  

The episode that will air this evening is stirring up controversy as a sacred, closed door, Mormon tradition will be portrayed and people are unhappy about it.  Show writers stated the scene is done with respect, a good amount of research, and that no disrespect is intended.  Some followers of the religion still have issues, but I have an issue…

• Christian ceremonies (mass, the crucifixion, confession) are shown in all form of entertainment
• Jewish traditions are in movies
• Muslims are portrayed while praying behind closed doors

…yet no one complains about this.  Mormons are – and should be -no different.

What if, however, the issue is not about disrespect or misrepresentation? What if the complaint is linked to control?  

I believe that some organized religions have the potential act as controlling entities.  They have a strong desire to limit their followers, for whatever reason.  Any version of the truth regarding a “secret” ceremony presented the public eye raises conversation, if not questions, thereby threatening an organizations power.

Maybe that is really what some Mormons have an issue with.

I’m off, Enjoy your evening.

If you happen to read my blog on a regular basis you are well aware of my feelings surrounding government bailouts for the automotive industry. If you don’t happen to stop by on a regular basis, let me recap: I believe a bailout of the U.S. automotive industry is one of the biggest wastes of money possible.

For years now, U.S. car companies poorly managed just about every aspect of their business – product lines, corporate image, customer satisfaction and labor management – yet they claim the current economic environment caused their misfortunes. Sorry, not the case…

That said, I cannot believe the arrogance displayed by Chrysler president Thomas LaSorda on 3/10/2009.

Chrysler LLC threatened last night to pull the company’s production out of Canada – a move that would throw 9,000 employees out of work – unless governments here provide $2.3-billion (U.S.) in loans and its Canadian union agrees to slash labour costs by 25 per cent.

At a parliamentary committee hearing last night, Chrysler president Thomas LaSorda said the company would commit to maintaining roughly a quarter of its North American production in Canada if its “needs” are met.
“The current success and long-term viability of Chrysler’s manufacturing operations in Canada is very much dependent on three critical factors,” said the Detroit-based executive, who grew up four blocks from the firm’s Windsor plant where his father, Frank, worked and was union president.

“Chrysler LLC cannot afford to manufacture products in a jurisdiction that is uncompetitive relative to other automotive jurisdictions.”

Essentially, Chrysler is telling the Canadian parliament “Give us $2.3B or else!” How does such a demand NOT equate to corporate blackmail? It is quite clear that Chrysler is not committed to protecting jobs in Canada as the corporation slashed a number of positions over the last two years and plan on more cuts in the future.

Not to beat a dead horse, but the market has spoken regarding the survival of Chrysler and GM. While I feel for those working at Chrysler Canada, these companies should fail.

In no way should any company be allowed to hold a government hostage due to their mismanagement. The continued support in the form of bailouts will only send the message to large organizations that a do “do what you wish, the tax payer will catch you” mentality is acceptable in business.

It’s not.

International news wires are covered with a very interesting story – The EU will not bailout Eastern Europe.  I believe this quote sums up the view the powers of the EU have quite well:

“Saying that the situation is the same for all central and eastern European states, I don’t see that,” said Merkel, adding “you cannot compare” the dire situation in Hungary with that of other countries. 

Two thoughts come to mind with this statement, but I fully admit that my understanding the European Economic climate is limited to Germany, France, Poland and Hungary, so I may be missing key counterarguments.  

The first problem I see with the bail out on a case-by-case basis for Eastern European countries is much like the U.S. faces with banking and financial institutions.  When one situation pops up, you beat it down like a “whack-a-mole” but another one pops up in place of the original.  The governments of the EU end up trading one problem for another as the financial distress ripples from one country to another.  

What the U.S. needed to do at the outset of this crisis was establish a fund that addressed all the toxic debt in the financial system.  They failed to do so and each financial institution has become an endangered animal as a result.  The EU in the same position as the US, only months later and with the opportunity to do it right.  Instead of preventing the collapse of governments by proactive solutions, the EU elite will allow the smaller countries to suffer (and so will their people).

The second problem comes down to a matter of politics. What if the EU does not wish to see Eastern European countries succeed?  What if the European Union is looking for a reason to NOT admit additional Eastern European countries into the EU.  What better way to keep a county out because they do not qualify to join because of their economic status?

What if the EU is attempting to keep countries like the Ukraine, Belarus or Georgia out of the EU due to pressure from Russia?  

Think about this – Russia is against former Soviet Union countries from gaining further independence. As a result, Russia reminds the EU that the majority of energy resources the EU consumes comes from Russia.  The EU has strict policies on finical requirements in order to join the Union, and what better way to impede a countries entry into the Union than hitting their pocketbook.  

If the European Union truly feels each country needed help on a case by case basis, they risk creating a larger financial crisis, much like the U.S. intensified the situation by not creating a blanket solution.  On the other hand if this is a political move by Russia and the EU, it was created to break the back of smaller former soviet states which would allow Russia the opportunity to regain the territory.

This is VERY long post that contains the entire text of President Obama’s Troubled Homeowners plan. If you do not care to read a lot, here is the short – short verion:

1. Only mortgages that are owned/guaranteed by Fannie Mae and Freddie Mac will be refinanced under this plan
2. No refis with a LTV greater than 105% will take place
3. Real Estate “flippers” are not covered
4. Protects those who can refi from a decline in value of roughly $6K, no more
5. Attempting to reduce payments for homeowners
6. Does not address the root of the problem – declining values
7. Does not talk about buying toxic assets or creating a bad bank
8. Adds additional 100B to Fannie and Freddie bringing their total bailout package to $200B

President Obama said..

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; 

Sorry, not to be crass – Bullshit!  I know a number of people (5) who played by the rules that are very underwater, none are open for the option listed out by the President today.

Ok, on to the full post….

Yesterday evening I went on a semi-controlled rant about the Government bailouts and stimulus package. The whole point I was driving toward came down to the middle class was left holding the bag in both cases, and is being put under an undue amount financial/economic stress, while obtaining very little in the way of financial assistance during this economic downturn.

A large portion of middle class mortgage holders, who purchased their home within the last three years, find themselves with property values considerably less than what they had paid for. Today news leaked out that the President was going to attempt to address the declining property values, those facing foreclosure and individuals who are underwater in their mortgage.

President Obama started:

“Today, as a result of declining home values, millions of families are “underwater,” which means they owe more on their mortgages than their homes are worth. These families are unable to sell their homes, and unable to refinance them. So in the event of a job loss or another emergency, their options are limited.”

Sounds promising thus far…

“Right now, Fannie Mae and Freddie Mac — the institutions that guarantee home loans for millions of middle-class families — are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home’s worth. So families who are underwater — or close to being underwater — cannot turn to these lending institutions for help.

There goes the hope…

In the second paragraph the speech President Obama is telling us this is more about propping up Fannie Mae and Freddie Mac than helping home owners.

But let’s break down the specifics of the program.

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices

• Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

• Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:
o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

First off, this only applies to mortgages that are owned/guaranteed by Fannie Mae and Freddie Mac. If your mortgage is held/owned/guaranteed by another institution you will not be able to utilize this “opportunity”.

Also, the maximum Loan To Value percentage that Fannie Mae and Freddie Mac will be able to refinance is now at 105%. If your property value losses are greater than 20%, and your equity is less than 15%, you will not be able to refinance because your LTV percentage would be higher than 105%.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

• Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
• No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
• Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.

• Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.

• Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:

§ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

§ “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.

§ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

§ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
§ Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
• Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
• Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities

§ Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
§ Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
§ Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
§ Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

The government is making it clear that “Flippers” are not going to benefit from this bailout, which is a good call, but the two key things to pay attention to are:

The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.

And

If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400.

Woo… hoo… $6K! Now my losses only stand at $84K to $54K… and if I’m am lucky enough, I can see a reduction in my monthly interest. The government is attempting to band aide people who have cash flow issues but, again, not address the problem – declining value.

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

• Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.

o Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

o Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.

• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.

• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.

• Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.

• No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.

Part three is telling us the government is doubling the aide to Fannie Mae and Freddie Mac because their losses were so significant, so unexpected, in 2008 the companies are simply burning through money.

By double the funding available, limit their refinancing options, and only address mortgages held by Fannie and Freddie, it appears that Uncle Sam is more concerned about saving themselves than people truly in trouble.

Refinancing will help those with money issues, yes. But if the true aim is to help the entire populous, level the playing field and provide refinancing options for ALL home owners who are underwater.

This plan did not address the one major issue facing the real estate market, the continuing decline in property values. Why are values falling? Well, obviously, in part due to the lack of demand but the “toxic assets” on the books of our financial institutions play a huge part in the market as well. Why? Because the assets have no known value – that is to say the owners of the assets do not truly know how to value them.

First – The government should create the “bad bank” already!

Set a price at which they will buy toxic assets from financial institutions, and create a bottom in the mortgage/CDO market.

Second – Remove the Mark-to-Market accounting rule.

The big reason banks are reporting such huge losses is due to having to report the value of their investments at whatever price it could obtain in the market today. Property is an asset, the value changes over time, and a loss/gain should be recorded when the property (on in this case, the note on the property) is sold. Not simply because it is the end of the quarter.

It almost seems as if the government is no longer looking at the problem facing the economy, almost as if they lost their focus…

Again, where is our F&#$ing bailout?

2/18 7:28 PM UPDATE – The news states that any Bank that got TARP funds has to take part in this program, but nowhere in the text of the bill is that mentioned (or if it is, I missed it).