What's Up With The $700+ Bail Out....

Federal Bureau of Investigation is overwhelmed..

More happy news from the economic front: it is possible that the perpetrators of the mortgage mess, the stock market nose dive, and a whole bunch of other peripheral crimes might just get away with it. The New York Times and the Associated Press are both reporting that the Federal Bureau of Investigation is overwhelmed by reports of possible criminal activity arising out of recent events, and, unless they can increase staffing in some of its divisions, might have to raise its own hands in surrender. At the root of the problem is a recent refocusing of Bureau resources on international terrorism rather than white collar crime. After 9/11 it shifted more than 1,800 agents from various criminal investigative activities to its terrorism and intelligence departments. This is nearly one-third of those agents previously working in the criminal divisions. Now the FBI is confronted with the need to investigate the collapse of Fannie Mae and Freddie Mac, possible [?]misbehavior leading to the demise of Lehman Brothers and the near-death of AIG, various suspected incidents of security fraud, and an ongoing concentration on homegrown mortgage fraud and the subprime market. In response, according to the NYT, the Bureau is planning to double the number of agents working financial crimes by another shuffle of personnel. The prosecution of non-terrorist related crime was already suffering before the recent problems emerged. The Times says that the F.B.I. has disclosed that the number of crimes they have turned over to prosecutors in areas such as drug trafficking and violent crimes has dropped from an annual rate of 11,029 to 8,187 in the last seven years, a decrease of 26 percent. Justice Department prosecutions (including cases referred from other agencies such as the Postal Service) dropped 48 percent from 2000 to 2007; insurance fraud cases were down 75 percent and securities fraud 17 percent.
Statistics from a research group at Syracuse University, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the F.B.I., show an even steeper decline of nearly 50 percent in overall white-collar crime prosecutions in the same period. The article quoted John Miller, an assistant director at the F.B.I as saying, "In white-collar crime, while we initiated fewer cases over all, we targeted the areas where we could have the biggest impact. We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims."
According to the F.B.I.'s website, corporate fraud remains the highest priority of the Financial Crimes Section and, as of the end of Fiscal Year 2007, 529 corporate fraud cases were being pursued by FBI field offices throughout the U.S., several of which involve losses to public investors that individually exceed $1 billion. Even before the extent of the subprime situation became apparent, the FBI was concerned about it and other forms of mortgage fraud and, according to the Times, "repeatedly" requested the Bush administration to provide it with more money to hire additional agents. The Bureau says it currently has 42 mortgage fraud task forces and working groups in operation and, as of August, 1,569 pending mortgage fraud investigations. There were 523 indictments or "informations" in Fiscal 2008 with 282 convictions. The Bureau estimates that $4 bill to $6 billion is lost every year to mortgage fraud and the states with the most fraud activity in 2008 were Florida, Nevada, Michigan, California, and Utah.
The Bureau also states as publicly traded subprime lenders have suffered financial difficulties due to rising defaults investigations have determined that many of these bankrupt subprime lenders manipulated their reported loan portfolio risks and used various accounting schemes to inflate their financial reports. In addition, before these sub prime lenders' stocks rapidly declined in value, executives with insider information sold their stocks and profited illegally.
A legal consultant and former prosecutor working for MSNBC said that any delay in investigating some of the alleged financial misdeeds can only work in favor of the dishonest and the criminally greedy as they will have the time to destroy such evidence as emails and otherwise cover their tracks. The Bureau, according to the NYT, is also concerned that its current shortage of personnel will make it possible for crooks to turn the $700 billion rescue package into another opportunity for profiteering.

Some Good Reading......

-Southern California home sales shot up by an unprecedented 65 percent last month from the dismal, record lows of a year ago, when a credit crunch slammed the brakes on home financing. September sales also posted a rare gain over August as price cuts lured more buyers. Foreclosure resales rose to half of all transactions.
A total of 20,497 new and resale houses and condos closed escrow in the six-county Southland in September, up 5.8 percent from 19,366 in August and up 64.6 percent from 12,455 in September 2007, according to San Diego-based MDA DataQuick, a real estate information service.
Last month's sales were the highest for any month since December 2006 and the year-over-year gain was the highest for any month in DataQuick's statistics, which go back to 1988. However, last month's sales were still the second-lowest for any September since 1996 and were 17 percent below the 20-year sales average for that month.
This September's huge annual sales increase stems from the extraordinarily weak activity in September 2007, when sales were at a record low for that month. The year-ago sales plunged after the credit crunch that struck in August 2007 made "jumbo" mortgages for higher-end homes more expensive and harder to obtain. Sales were already hurting from the subprime mortgage industry meltdown earlier in 2007, which undermined demand for entry-level homes.
"The pitifully low September 2007 sales numbers weren't tough to beat. More impressive was that this September's sales volume bucked the seasonal norm and rose above August. Steep price declines, especially inland, have improved housing affordability quite a bit and may keep sales levels well above the record lows we saw late last year and early this year. It will depend on the severity of this economic downturn," said John Walsh, MDA DataQuick president.
"You have to view last month's sales in the proper context," he cautioned. "They represent escrow closings, which reflect purchase decisions made in mid-to-late summer. That was before the dramatic worsening of the nation's economic crisis in recent weeks. Over the next few weeks our sales data will begin to show how the meltdown in financial markets this fall has impacted housing demand."
Bargain shopping continued to fuel the Southland market last month, with sales typically rising the most in areas where prices have dived and foreclosures have soared.
Fifty percent of all existing homes that closed escrow in September had been foreclosed on at some point in the prior year. That's up from 45.5 percent in August and 12.6 percent in September last year.
At the county level, such foreclosure resales ranged from 36.8 percent of September resales in Orange County to 68.9 percent in Riverside County. In Los Angeles County foreclosure resales were 39.1 percent of all resales; in San Diego 47.3 percent; San Bernardino 63.1 percent and in Ventura County 44.0 percent.
The high level of foreclosure resales helped push the Southland's median sale price down to $308,500 in September, the lowest since it was $305,000 in May 2003. Last month's median was 6.5 percent lower than $330,000 in August and 33.2 percent lower than $462,000 in September 2007. The September median stood 38.9 percent below the peak $505,000 median reached in spring and summer of last year.
Several factors explain the sharp drop in the median price: Regionwide home price depreciation, relatively slow high-end sales, and the rising market share of foreclosure resales, which tend to sell at a discount.
Problems in the jumbo mortgage market continue to undermine high-end home sales. Before the credit crunch hit last August, 40 percent of sales were financed with jumbos, then defined as over $417,000. Last month just 13.2 percent of purchase loans were over $417,000.
MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,458 last month, down from $1,566 the previous month, and down from $2,198 a year ago. Adjusted for inflation, current payments are 31.9 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 44.4 percent below the current cycle's peak in June 2006.
Indicators of market distress continue to move in different directions. Foreclosure activity is at or near record levels, financing with adjustable-rate mortgages is near the all-time low, as is financing with multiple mortgages. Down payment sizes and flipping rates are stable, non-owner occupied buying activity appears flat but might be emerging, MDA DataQuick reported.
An estimated 37,988 new and resale houses and condos were sold statewide last month. That was down 3.8 percent from 39,507 in July and up 13.6 percent from 33,429 for August last year. California sales for the month of August have varied from 29,764 in 1992 to 73,285 in 2005, the average is 49,927. MDA DataQuick's statistics go back to 1988.
Of the homes sold in August, 46.9 percent were foreclosure resales, up from a revised 44.9 percent in July and 9.4 percent in August a year ago.
The median price paid for a home last month was $301,000, down 5.3 percent from $318,000 for the month before, and down 35.3 percent from $465,000 for August a year ago. Around half the drop in median is due to depreciation, the other half due to shifts in the types of homes selling, and how those homes are financed.
The typical mortgage payment that home buyers committed themselves to paying last month was $1,428. That was down from $1,501 in July, and down from $2,251 for August a year ago. Adjusted for inflation, mortgage payments are back to where they were in late 2001. They are 31.0 percent below the spring 1989 peak of the prior real estate cycle. They are 44.2 percent below the current cycle's peak in June 2006.

2009 CONFORMING LOAN LIMITS

(10/17/2008) The Federal Housing Finance Agency (FHFA) expects to announce 2009 conforming loan limits for Fannie Mae and Freddie Mac by November 7. The limits define the maximum loan size of mortgages that can be purchased by the Enterprises.
Under the Housing and Economic Recovery Act of 2008 (HERA) passed in July, FHFA was directed to set conforming loan limits each year for the nation as a whole as well as for high-cost areas. The rules governing how the loan limits are established differ from the rules set forth in the Economic Stimulus Act of 2008 (ESA), which applies to loans originated in 2008. For example, under ESA, loan limits for high-cost areas were set at 125 percent of local house price medians and the maximum high-cost limit was 175 percent of the national conforming limit ($729,750 in the continental U.S.) Under HERA, the high-cost area loan limits are 115 percent of local price medians up to a maximum of 150 percent of the national limit. In 2009, if the national limit remains at $417,000 for one-unit properties, the maximum limit in high-cost areas would be $625,500 for the continental U.S. To determine high-cost area limits under HERA for 2009, FHFA will use median home values estimated by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD). The FHA median prices will be calculated in the coming weeks by FHA for the purpose of determining its 2009 loan limits. Information concerning its process and calculations can be found in the attached addendum.

A Few Good Men.....Plus My Answer To The Crisis - in part....

If you by error come up short at work you'd been fired long ago for much less. Don't be fooled, lots of this is criminal - on all sides of the ball. Consumers, Bankers, CEO etc.

Not all BIG BRASS are oblivious and absent minded leaders. Here is a mish mash of the good, bad and the ugly.

``There are three reasons why companies go out of business and individuals go out of business: No. 1 is arrogance, No. 2 is arrogance and No. 3 is arrogance,'' said Harvey Mackay, chairman and CEO of Minneapolis-based MackayMitchell Envelope Co. Harvey goes on to add, "They all have chapped lips from kissing the mirror too much.'' Warren Bennis from USC adds, "``They need to man up and take responsibility,'' - founder of the Leadership Institute at the University of Southern California and author of books including ``Leaders'' and ``On Becoming a Leader.'' ``They kept winning, believing in their own omniscience and thinking they can get away with anything.''

Boards bring CEOs aboard to maximize company profits not CEO compensation -

I find this quote to be very interesting.

Richard Fauld - CEO Leham Brothers, " ``horrible about what happened'' and that management did everything we could to protect the firm.''

Did everything to protect the firm? Really?

I have no objection to making big compensation, but should it not be performance based?

Fuld, whose compensation for his last eight years totaled $484.8 million, said Lehman had to seek bankruptcy protection Sept. 15 because of a ``financial tsunami'' that was ``bigger than any one firm or industry.'' -

$484+ million in pay should make you accountable to something - should it not?

What ever happen to taking some responsibility? What ever happen to - "We made some bad decisions" or "As The Leader I take Full responsibility"

A Responsible CEO (Jeff Gault) of Los Angeles-based LandCap Partners, which bought $40 million of land and construction loans from Wachovia Corp. in August. ``You're either the boss or you're not the boss. The CEO is the owner of the deal.''

In closing -

Anyone notice how no body is claiming any sort of error in judgement. Its as if this ALL JUST HAPPENED.

*** Here is a rank and file idea - NO CAPITAL GAINS ON THOSE THAT PURCHASE THESE ASSET BACK SECURITIES? This would be so good on so many differant levels for so many people.

Not All Sub Prime Operations Are Drowing in Red Ink

How can you not like Warren. He lives in the same home he grew up in, makes a ton of money (#1 Richest Man In The World) - fiscal conservative social liberal and

Open your ears for this one and listen real good - NOT EVERY SUB PRIME LENDER DROWING in bad loans. In 2003, Warren Buffett bought a family-run business based in Maryville, Tenn called Claytn. 45% of the loans for the Clayton homes were made to sub prime borrowers. Here's the brass tax. The sub prime home loans Warren's company has been involved with have 1/2 the delinquency rate of the national stick bulit homes. Here is the cherry on top - THE FORECLOSURE RATES FOR CLAYTON HOMES IS DOWN. Clayton is more careful about lending because it keeps all loans on its own books rather than offloading them to others by means of securitization. Imagine that. Holding your own paper. Clayton has banked on homebuyers who can afford their monthly payments and who purchased their houses owner occupied, not for speculation. Clayton also avoided the mortgage industry practice of enticing buyers with low initial payments, followed by much higher payments a few years down the road. Most notably, Clayton's customers aren't likely to walk away from a house simply because it has lost value. "If people purchased a house with the idea that it would appreciate substantially in the next few years, they may elect not to make their payment," Buffett wrote. "Since our borrowers did not come in with those expectations, they will quit making payments only when they can't make the payment."

Libor Libor Libor Libor Libor Libor Libor Libor Libor

The average subprime borrower facing an adjustable payment for the first time next month would face a monthly payment increase of about 18 percent based on Libor rates as of Sept. 30, rather than the 10 percent that would have occurred based on the rates on Sept. 15. Libor rates have soared since the bankruptcy of Lehman Brothers Holdings Inc. last month as financial companies hoard cash.

About 121,000 mortgages will reset for the first time next month, according to the Citigroup report, which looked at only securitized mortgages. About 1.8 million loans have already begun adjusting based on benchmark rates, the report said, while 3.7 million face resets scheduled for after next month.

LIBOR is the interest rate that banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for banks rates all over the world.
LIBOR is compiled by the British Bankers Association (BBA), and is published 11 am each day in conjunction with Reuters. It is comprised from a panel of banks representing countries in each currency.
LIBOR is also used to guides banks in setting rates for adjustable-rate loan, including interest-only mortgages and credit card debt. Lenders typically add a point or two, which is their margin.
What It Means to YouIf you have an adjustable-rate loan, when your rate resets, it is usually based on the LIBOR rate. Even if you have a fixed-rate loan and pay off your credit cards each month, an increasing LIBOR will affect you by making all types of consumer and business loans more expensive. This reduces liquidity, which slows economic growth.