Making sense of the foreclosure-rescue maze

The Obama administration’s release of details and guidelines for its $275 billion foreclosure rescue plan that could help as many as 9 million at-risk mortgage holders nationwide is step one in a process that will require patience, attention to detail, and a lot of cooperation on the parts of lenders and borrowers.

What is not known is how many of those mortgage holders in New Hampshire and Maine will benefit from the two programs in the Make Home Affordable plan, which was crafted to help two different groups of struggling homeowners.

Eligibile for help?

To determine borrower eligibility for one of the two Making Home Affordable programs — Home Affordable Finance or Home Affordable Modifications — there are four quick avenues of information.

1) The federal government has set up a detailed borrower Q&A web link at

borrower_qa.pdf that acts as the first step to determine eligibility.

2) Borrowers can also speak directly to Housing and Urban Development-approved housing counselors at 1-800-995-4673. The counselors can help borrowers evaluate their income and expenses and explain options. This counseling service is free.

3) The state of New Hampshire has also set up a Web site for struggling homeowners at

4) Borrowers can also call their loan server, the bank or lending company that takes mortgage payments.

The Home Affordable Modifications plan is for those who have fallen behind on mortgage payments and face foreclosure, but have the capability to remain in their homes if payments are reduced to 31 percent of gross monthly household income.

The Home Affordable Refinance will help borrowers looking to refinance and lower their payments, but have been found it difficult because of property value decline.

Both programs come with strict guidelines designed, administration officials say, to separate the struggling mortgage holder from speculators and the irresponsible. (See accompanying box to find out more about eligibility guidelines.) The goal, both federal and local officials insist, is to stop the spiral of foreclosures and sagging property values.

“It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets,” said Treasury Secretary Timothy Geithner in announcing the guidelines for the plans Wednesday.

“The more people that can be assisted to stay in their homes, the better it is for everybody, the housing market and our economy,” said Jane Law of the New Hampshire Financing Authority.

Law said she could only guess at how many people could be helped by the two programs.

“Every case is so different and that’s what makes it difficult to estimate,” she said.

But what is known is that the sagging housing market has been a major factor in the current economic recession. Supporters of the plan hope it will help lead to a floor in the housing market.

“The core of our economic problems is primarily due to a drop in the value of real estate,” said Sen. Judd Gregg, R-N.H. Despite it’s hefty price tag, Gregg supports the Obama administration’s “aggressive plan” because “stabilizing the housing market is crucial” to helping stop the economic slide.

While New Hampshire and Maine haven’t been hit as hard as states such as Arizona, Florida or California, the foreclosure numbers have risen dramatically.

According to the New Hampshire Housing Finance Authority, Rockingham County foreclosures have risen from 66 in 2004 to 805 in 2008. Overall, 3,563 foreclosure deeds were filed in New Hampshire in 2008, up more than 700 percent from 448 in 2005. Maine had 2,851 foreclosure filings in 2008, an almost 900 percent increase from 2007. York County had 86 properties in foreclosure in January. Both states have seen a rise in so-called “short sales” in which homeowners and lenders agree to sell a property far below the value of the mortgage.

“President Obama’s plan is aimed preventing millions of foreclosures, which are the root cause of the downward spiral in property values,” said Sen. Jeanne Shaheen, D-N.H. “This is an issue of deep concern to me and I believe we must take action to help New Hampshire families stay in their homes and protect responsible homeowners who have seen their home values fall through no fault of their own.”

The Making Home Affordable plan would target $75 billion for lenders and borrowers to restructure or refinance as many as 9 million at-risk mortgages, inject $200 billion into the mortgage giants Fannie Mae and Freddie Mac, which the federal government took over last summer, for lending capital. The administration also is supporting legislation making the rounds in Congress that would allow bankruptcy judges to rewrite mortgages for homeowners in bankruptcy.

Gregg said the crisis is impacting people’s sense of personal worth and has partially crippled the overall credit market. He believes the federal government will do more to help and is working on legislation to offer a “low-mortgage window” for refinancing and home buying to help stimulate activity.

“What we need to do is get the inventory sold and get value underneath the market,” he said.

Citizens Bank, one of the state’s largest financial institutions, said it has already seen a lot of contact activity from its customers since the guidelines were released. Spokesperson Kathleen Reardon said it was still too early to determine how many might be helped.

“We’re reviewing the program and plan to participate,” she said.

But one local bank doesn’t expect to see an increase in inquiries.

“Given the favorable drop in interest rates, we like everybody have seen a very high volume of refinancing,” said Jim Brannen, the chief financial officer of Federal Savings Bank in Dover. “I think that property values (in the Seacoast region) have held up a little better than in other parts of the state and country. Because we have more conservative lending practices, when our customers come in to refinance, they are generally speaking in better (financial) shape.”

Federal Savings Bank issued no subprime loans and Brannen said “our levels of default and delinquency are very low and manageable.”

While the foreclosure rescue plan has generated a fair amount of criticism for bailing out reckless mortgage holders at the expense of the vast majority of Americans who have kept up with payments and acted responsibly, the guidelines issued by the Obama administration reveal a set of strict guidelines designed not to save every bad mortgage or those “underwater” (whose mortgage value exceeds their property value.)

Jane Law at the New Hampshire Housing Authority said the plan offers a wide range of financial incentives for both borrowers and lenders to make the program work. Law said the plans mandate a three-month probation period for borrowers to ensure their commitment.

Also, the federal government will offer mortgage-servicing companies up-front incentive payments of $1,000 for every loan they modify and follow-up payments of $1,000 annually for the first three years if the borrower remains current. For the borrower, the government will also pay $1,000 a year to directly reduce the borrower’s loan amount — in essence adding to the homeowner’s equity — if the borrower makes payments on time for five years.

Federal officials are warning against scams likely to emerge. The loan refinancing and modification application process is free and any person or company offering loan modification or refinancing services for a fee should be avoided.

Obama’s Stocks and Bonds Bear Market

Even $9.00 an hour jobs are being filled by older applicants and high paying jobs are lost. Retail jobs are disappearing at a faster rate in this recession than in any other since the U.S. government began keeping track in 1939.

From the “We could see this coming” category,

Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

Last week, the FDIC proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. The Dodd bill, if it becomes law, would represent an alternative source of funding.

It appears that the only entity that isn’t broke yet is the government.

Obama’s Bear Market.

— The Dow Jones Industrial Average has fallen 20 percent since Inauguration Day, the fastest drop under a newly elected president in at least 90 years, according to data compiled by Bloomberg. The gauge has lost 53 percent from its October 2007 record of 14,164.53, slipping 4.1 percent to 6,594.44 yesterday. More than $1.6 trillion has been erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse.

Treasuries are struggling with a potential oversupply.

Treasuries fell this morning as traders focused on the $63 billion in notes and bonds to be sold next week after a government report showed the economy shed jobs and unemployment climbed to the highest level in more than 25 years.

Government debt has handed investors a 2.5 percent loss so far this year as the U.S. embarks on the sale of more than $2 trillion in debt to steer the nation out of recession.

Gold is giving back hard-earned gains.

( Bloomberg ) — Some investors have become concerned about possible future inflation as governments and central banks spend trillions of dollars and lower interest rates in an effort to rescue financial companies and revive economies. Those steps have yet to help the U.S. economy, the world’s largest, to revive growth or stem job cuts as companies seek to reduce costs in response to tumbling sales. As long as the economy is flat on its back, inflation may not have the effect that is anticipated.

Japanese sentiment a sign that they are near a bottom?

Japanese stocks retreated, extending a weekly decline, on concern a shortage of funds could spark collapses in the automotive and electronics industries. “Investors are getting more and more worried about businesses’ survival as the end of the fiscal year draws near,” said Yoshihiro Ito , senior strategist at Tokyo-based Okasan Asset Management Co., which oversees about $9.3 billion. “The deterioration of Japan’s economy is way beyond that of other nations, and the market has entered a tunnel with no exit.”

The Shanghai Index optimistic prospects may be dimming.

China’s stocks fell, paring the benchmark index’s weekly gain, as commodity producers and shipping lines slid on concern stimulus spending won’t be enough to offset the collapse in the nation’s exports. Collapsing exports have dragged China, the world’s third- largest economy, to its weakest growth in seven years. Optimism government stimulus spending will revive growth has driven the Shanghai Composite 20 percent higher this year, the best performer among 91 global stock gauges tracked by Bloomberg.

The dollar is due for a pullback,

— The dollar fell against the euro and the yen before a government report that may show the U.S. lost the most jobs last month since 1949.

The U.S. currency weakened for a second day against the yen before the Labor Department report, which may show the unemployment rate rose in February to a 25-year high as payrolls fell by 650,000.

Housing plan “kicking the can down the road.”.

The Obama administration yesterday sketched in the details of its most ambitious attempt to reduce foreclosures and stabilize the beleaguered housing market at the root of the economic meltdown. The program has two key elements: a refinancing program for borrowers with little equity in their homes but current on their loans, and a $75 billion program to help reduce mortgage payments for struggling borrowers. Unfortunately, it does not address that most homeowners who are in trouble have negative equity. This plan carries more hope than substance.

You’ve got oil!

The Energy Information Administration tells us about a relatively recent discovery of shale oil in the Western States. “The Bakken Formation contains a major onshore unconventional oil resource in Montana, North Dakota, and Saskatchewan, Canada. The Bakken shales produce a light oil that is generally desirable because it offers a high yield of gasoline and other key petroleum products. Proved oil reserves in Montana and North Dakota grew from 831 million barrels in 2006 to 892 million barrels in 2007.”

A lack of drawdown is keeping gas supplies high.

The Energy Information Agency’s Natural Gas Weekly Update reports that a late winter cold spell in the lower 48 states and a winter storm in the east has temporarily boosted natural gas prices. But the drawdown of 102 billion cubic feet (BCF) was less than the prior 5 year average of 121 BCF and smaller than the 139 BCF drawdown last year.

Are our banks worth saving?

Our politicians want to blame our banking problems on the greedy executives. There is plenty of blame that can be pointed there. However, our financial system has been rigged by a maze of laws and regulations that has flawed the system so badly that it may not be worth saving. Michael Rozeff of has written an article that may help understand why the current system may not be worth saving.

Ground zero of the economic depression is the banking system – worldwide. The system is collapsed, exploded, demolished, gone, ruined, kaput. The global banking system was a house of cards, and it has fallen. Governments and central banks everywhere do not yet realize this. They are attempting to rebuild the house from the pieces and scraps scattered far and wide. Better to salvage the pieces that still work and use them in an entirely new system than attempt to rebuild this one on the same cracked foundation and along the same flawed lines that produced this wreck.

Our Investment Advisor Registration is on the Web .

We are in the process of updating our website at to have more information on our services. Log on and click on Advisor Registration to get more details.

If you are a client or wish to become one, please make an appointment to discuss our investment strategies by calling Connie or Tony at (517) 699-1554, ext 10 or 11. Or e-mail us at .

Anthony M. Cherniawski,
President and CIO

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