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Holiday Foreclosure Moratorium Enacted | Short Sale Designation

The New York-based bank said Thursday the suspension will run from Friday through Jan. 17. It applies only to borrowers whose loans are owned by Citi. Borrowers who make payments to Citi but whose loans are owned by other investors are out of luck.

“We want our borrowers to have a much less stressful time, to spend their time with their families during the holidays as opposed to worrying about their homes,” Sanjiv Das, head of the company’s mortgage division, said in an interview.

The suspension means Citi will halt foreclosure sales and stop evicting homeowners from properties it has already seized. The company projects it will help 2,000 homeowners with scheduled foreclosure sales and another 2,000 that were due to receive foreclosure notices.

Das also said the company is working on “some long-term fundamental alternatives” to foreclosure, but declined to be specific. “We know that moratoriums are not permanent solutions,” he said.

Watch: the new language going into 2010 will be ‘foreclosure alternatives’. Don’t think this means loan modifications. When they say ‘foreclosure alternative’…they mean Short Sales. 2010 is a mid-term election year. This means the politicians running for reelection want to be able to claim that ‘foreclosures are slowing’…that may indeed by true from a technical perspective. But, only because they are doing more Short Sales. Clearly one of the best ways to help others and make money in 2010 will be listing and selling short sales.

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We broke the news about the new Short Sale Treasury department guidelines back in October. Watch the videos we put together for you explaining what is going to happen in 2010 with Short Sales.

Home prices are still 20% above long term averages according to case-shiller index. As the money supply deflates, expect lower prices in everything. Stocks, commodities, gold, housing all point to down. The problem is the high debt levels in the society. When we borrow, money supply inflates. This borrowed money needs to be paid back with interest. Principal + interest can only be paid back with more borrowing! As the borrowing / lending slows down, bank credit, which is the most of our money supply deflates and leaves us unable to pay old debt. Here is the debt problem:

http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html

Deflationary crash will continue until debt falls to a sustainable multiple of GDP.

Source: Real Estate Newsletter

America’s megabanks- Goodbye, or see you again?

Print edition

America’s big banks are repaying the state. Can they really walk alone?

IT WAS less of a goodbye kiss and more of a farewell hand-off in the face. Thirteen months after getting government cash from the Troubled Asset Relief Programme, America’s megabanks have stampeded to repay it before the new year, desperate to escape the stigma and meddling it has brought. On December 9th Bank of America (BofA) said it had repaid the $45 billion of preferred stock owned by the state and sold $19 billion of new ordinary shares. Citigroup and Wells Fargo announced similar plans on December 14th. (JPMorgan Chase, the other megabank, repaid the state in June.)

In total this month the government should get $90 billion of preferred stock (really a form of debt) repaid, while the banks will raise some $50 billion of common equity to boost their capital. The state will tear up its loss-sharing agreement with Citi. It also intends to sell its $25 billion of ordinary shares in the bank within a year, although immediate plans to flog $5 billion-worth were put on ice after Citi’s shares dipped too low for the Treasury’s taste. That blip aside, the banks are feeling perkier. BofA, which has struggled mightily to hire a new chief executive, managed to appoint Brian Moynihan, a company insider, to the role on December 16th.

For taxpayers relief at being repaid should be tempered by the fact that they are still on the hook for these too-big-to-fail firms. Regulation could help. The House of Representatives approved a bill on December 11th that avoids immediate surgery but would allow supervisors to beat up banks that pose a “grave threat” by, for example, blocking mergers and even forcing disposals. The bill also says creditors must take a “haircut” of up to 10% if a bank fails. But this is pretty tepid stuff: as soon as creditors sense a failure is imminent, they will refuse to roll their loans over, starting a run. The Senate is still ruminating on its own bill. It may take until the middle of next year for a final law to be passed. One Wall Street hedge-fund manager speaks for many when he says “the banks aren’t afraid” of the government any more.

Can the public at least be sure the banks are healthy? Huge progress has been made. Combined bad-debt reserves for the four megabanks stand at 4.3% of loans, or $130 billion, compared with 2.6% a year ago. The next line of defence, core capital, has reached $400 billion. That meets the target set by the Federal Reserve’s stress tests in May and is almost double the amount at the end of 2008. Citi’s ratios in particular have improved dramatically (see chart). Three-quarters of the megabanks’ assets are now financed by sticky deposits, equity or long-term debt.

Yet as students of Japan’s zombie banks know, nasties may lurk in the megabanks’ $7.4 trillion of assets (equivalent to about half of America’s GDP). The banks’“level 3” assets, which are illiquid and hard to value, are still $346 billion—almost as much as their core capital. The fair value of loans, the price a third party would pay for them, is $76 billion below the value they are held at on the banks’ balance-sheets, suggesting bad-debt recognition is too optimistic. The biggest worry is that the banks are making profits largely because their funding costs are at rock bottom. In the third quarter the four paid an average annual rate of 1.4% on their debt and deposits. America’s banks are nearly free of state ownership, but may still be addicted to near-free funding.

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Source: economics