Arguments for Receivership

It must allow for class actions is not necessary to ensure effective enforcement of privacy laws.The FTC, other federal agencies, and state authorities provide effective means of enforcing privacy rights. These governmental entities are much less likely to bring lawsuits for technical violations of a statute where no real harm results. Such entities also have limited resources and so focus their attention on situations where injury occurs. In dismissing the complaint in the Trans Union case described above, the court held that individuals that have suffered no actual damage have been and continue to be protected by the FTC's enforcement of the statute and regulations.[5] The court concluded that, regulation by the FTC, coupled with individual actions for damages (and attorney fees), is superior to a class action for statutory damages by tens of millions of consumers who claim no actual economic loss.[6]

WHAT'S UP IN THE SUB PRIME MARKETS?

Mortgage lender Taylor, Bean and Whitaker Mortgage Corp. has been suspended from the Federal Housing Administration (FHA), on grounds of possible fraud.

According to the FHA, Taylor Bean failed to submit a mandatory annual financial report and did not reveal they had unresolved issues with an independent auditor, which had found "irregular transactions that raised concerns of fraud".

The firm is the third-largest lender in the FHA, but may not survive the suspension, said David Lykken of consulting firm Mortgage Banking Solutions.

Taylor Bean and Whitaker is known for purchasing FHA mortgages from new lenders during their probationary periods with the agency, something most other lenders refuse to do. The firm also has a reputation of being "less strict" when underwriting FHA and "conventional" mortgages (which may be sold to mortgage companies such as Fannie Mae, who are supported by the government).

SUB PRIME MESS UPDATE

In its latest assessment of the $700 billion financial system bailout, the Congressional Oversight Panel warns that banks still hold many risky loans of uncertain value. If unemployment rises sharply or the commercial real estate market collapses - as many economists fear - the banking system could again lose its footing, the panel says in a report to be released Tuesday.

"The financial system (remains) vulnerable to the crisis conditions that (the bailout) was meant to fix," the panel wrote in a draft copy of Tuesday's report.

The Congressional Oversight Panel was created as part of the Troubled Asset Relief Program, or TARP. It is designed to provide an additional layer of oversight, beyond the Special Inspector General for the TARP and regular audits by the Government Accountability Office.

The report says many of the Obama administration's financial stability efforts are working - including infusions of new capital for banks, heightened scrutiny of capital ratios, "stress-testing" of large financial firms. It also pointed to a public-private investment plan designed to buy up bad assets that has yet to get off the ground.

But with banks still holding the assets at the heart of the crisis, they remain vulnerable, the panel says.

"These steps have ... allowed the banks to take significant losses while building reserves," the panel wrote in the draft report. "Nonetheless, financial stability remains at risk if the underlying problem of toxic assets remains unresolved."

Small banks are especially vulnerable, the report notes. The troubled assets weighing on their balance sheets generally are in the form of complete loans, as opposed to the mortgage-backed securities formed from bundles of numerous loans that have been divvied up. The Treasury Department's main program for buying up bad assets, however, currently targets only those securities and not the so-called "whole" loans.

In addition, the report says, regional and smaller banks hold greater numbers of commercial real estate loans, "which pose a potential threat of high defaults." It said the adequacy of small banks' capital cushions against losses hasn't been tested by the government, which performed "stress tests" in May only on the 19 biggest U.S. banks - including Bank of America Corp., Capital One Financial Corp., Citigroup Inc., GMAC, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co.

Owners of shopping malls, hotels and offices have been defaulting on their loans at an alarming rate, and the commercial real estate market isn't expected to hit bottom for three more years, industry experts have warned. Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, according to the Federal Reserve.

The commercial real estate market's fortunes are tied closely to the economy, especially unemployment, which registered 9.4 percent last month. As people lose their jobs, or have their hours reduced, they cut back on spending, which hurts retailers, and take fewer trips, affecting hotels.

Ten months into the federal rescue program, the troubled assets "remain a substantial danger to the financial system," the report says. "Financial stability remains at risk if the underlying problem of toxic assets remains unresolved."

The oversight panel has issued a series of reports on the government's financial bailout programs, raising a series of questions about their management and oversight. It is headed by Harvard Law School professor Elizabeth Warren. The other members are Rep. Jeb Hensarling, R-Texas; Richard Neiman, superintendent of banks at the New York State Banking Department; Damon Silvers, associate counsel at the AFL-CIO; and former Republican Sen. John Sununu of New Hampshire.

BANKS LETTER TO FDIC FYI

ake Elmo Bank

From: Dan Raleigh
Sent: Friday, March 02, 2007 3:16 PM
To: Comments
Subject: Statement on Sub-prime Mortgage Lending.

To whom it May Concern,

"The agencies request comment on all aspects of the proposed statement and are particularly interested in public comment about whether: 1) these arrangements always present inappropriate risks to institutions and consumers, or the extent to which they can be appropriate under some circumstances; 2) the proposed statement would unduly restrict existing sub-prime borrowers' ability to refinance their loans; 3) other forms of credit are available that would not present the risk of payment shock; 4) the principles of the proposed statement should be applied beyond the sub-prime ARM market; and 5) an institution's limiting of prepayment penalties to the initial fixed-rate period would assist consumers by providing them sufficient time to assess and act on their mortgage needs. "

These are my comments in regards to your request:

1) Sub-prime lending has a place in our market, however it is irresponsible to have qualifying standards which make repayment impossible. This may be happening in "prime" lending as well. The loosening of credit criteria has been happening without being tested base on a 10 year boom in the real estate market. Debt to Income ratios need to be the compensating factor in sub-prime lending. There is too much weight put on appraisal values.

2) Recent decline (or non-appreciation) in real estate values will hurt the borrower's ability to refinance more than changing regulations regarding sub-prime lending.

3) Payment shock can be prevented by qualifying borrowers on expected rates, while allowing them to take the risk of a variable rate. Borrowers who qualify under traditional Debt to Income ratios, will be able to absorb rate increases. Borrowers can't absorb small increases in payment or unexpected expenses of any kind, with the un-tested ratios which are being used today.

4) I agree with this statement as stated above.

5) pre-payments don't appear to help or hurt consumers in this area.

Absolutely the most important item not requested is the avoidance of trying to educate borrowers through loan documentation. They simply do not read the paper work. It is not feasible or probable that any borrower could read the required documents at closing.

Borrowers who become over extended are relying on the bank to give them guidance on what they can afford. Excessive debt to income ratios will become obvious and should be corrected by underwriters. Community banks, regulators, and tax payers should not have financial expense due to irresponsible lending practices of Fannie Mae and Freddie Mac.

Daniel D Raleigh
President/CEO
Lake Elmo Bank

GM: Subprime lending? Great idea!

Posted Apr 08 2009, 12:33 PM by Minyanville

Rating:

Filed under: GM, economy, automotive, Todd Harrison

While General Motors (GM) surely has a hangover from the credit crisis and faltering economy, it's hoping to cure some of the effects of that hangover with the hair of the dog that bit it.

GM’s finance division, GMAC Financial Services, is cutting financing costs and reviving subprime lending to speed up car sales and entice people back into GM showrooms. Subprime lending is the very thing that helped sink GMAC, and in turn, helped accelerate the parent company’s decline.

General Motors has been given a June 1 deadline to come up with a restructuring plan. Bankruptcy is the alternative. GM has relied on $13.4 billion of U.S. government loans to stay in operation since the start of the year.

Whether it's tequila or subprime loans to shaky borrowers, the hair of the dog rarely turns out well. It’s hard to see how it’ll be different this time for GM.

GMAC, which is owned by GM and private equity firm Cerberus Capital Management, announced at the start of April that it would make at least $5 billion available as loans to car buyers over the next 60 days. The end date for the program -- June 1 -- isn’t coincidental: GM must prove to the federal government by that day that it can ultimately survive on its own. GMAC is also providing loans to dealers to help them clear a backlog of unsold cars.

GMAC’s loans will be made available for buyers of both new and used cars. Buyers can have credit scores under 620 -- this crowd being the subprime gang. Just the term strikes fear into the hearts of past and present derivatives traders.

Back in October, GMAC restricted lending to customers with scores over 700. When the government provided GMAC $6 billion in loans, the minimum score was lowered to 620. The cash infusion was meant to allow GMAC to get more consumers the car loans they needed. Now it’s gone back under 620, a return to those halcyon days of lending. GMAC insists that the subprime group would be approved sparingly, but if it wants to show that business is improving, discretion isn’t a good idea.

U.S. auto sales dropped 37% in March, and GM’s sales were down 45%, though slightly better than estimates. This move, as a way to open up credit, smacks of desperation. Obviously, GM believes it must do something to get cars out the door again. But, then again, what does it have to lose?