According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.
Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.
“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices.
The Housing Fix -- A CNBC Special Report >> See Complete Coverage
The indices measure the US residential housing market by tracking changes in the value of residential real estate both nationally and in 20 metropolitan regions.
Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”
At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee.
The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.
One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities, whose company trades as much as $50 billion in mortgages annually.
“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”
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Fannie-Freddie Bailout Could Cost Taxpayers $1 Trillion - CNBC
SCOTUSblog » Credit card holders’ rights
Credit card holders’ rights
Monday's orders explained
Lyle Denniston | Monday, June 21st, 2010 4:22 pm
The Supreme Court, taking on a case affecting the rights of credit card customers, agreed on Monday to settle banks’ duty to give advance notice before raising the interest rate they will charge when a card user defaults on a payment. The Court granted review despite the advice of the federal government that the case should be returned to lower courts to consider the Federal Reserve’s views. The government suggested the case had little continuing importance, but bank card-issuers disagreed. The case will be heard and decided in the Term starting Oct. 4.
A series of lawsuits, aimed at perhaps half of the entire credit card industry, followed a Ninth Circuit Court ruling that a customer had to be notified in advance if a card-issuer was going to raise a rate due to delinquency or default — even though the contract with the issuer already had indicated that such a change would follow. Chase Bank USA, a card issuer, took the case on to the Supreme Court, saying it was already clear that the Federal Reserve did not require any such notice. (In 2009, the Fed, later backed by a new law from Congress, imposed a 45-day advance notice for implementing a default rate increase, but that only applies to increases that would go into effect after last August, and not the ones at issue in Chase Bank USA v. McCoy, et al., 09-329. (Chase Bank is now a part of J.P. Morgan Chase & Co.)
Last January, the Court asked the U.S. Solicitor General to provide the government’s views on the case. Last month, Acting U.S. Solicitor General Neal K. Katyal suggested that the Court return the case to the Ninth Circuit, to consider a friend-of-court brief that the Fed had filed in the First Circuit Court last October. In response to that suggestion, lawyers for the California cardholders who had sued Chase Bank argued that taking that step would be unprecedented — that is, the Court has never before sent a case back to a lower court to reconsider in the wake of an amicus brief filed in another case in a different court. That response relied upon a series of sharply critical comments that Justice Antonin Scalia has been making , protesting the increasing practice in the Court of granting review of a case and simultaneously wiping out the lower court ruling and returning the case for a new look. Scalia has caustically suggested that the Court is making up a variety of reasons for evading its duty to decide cases on the merits.
It is unclear whether the Court’s decision to grant review, rather than sending the case back to the Ninth Circuit, had come because of Scalia’s views about the so-called GVR process. The Court may have simply decided that enough existing lawsuits, predating the Fed’s new Regulation Z policy on advance notice, were now on file that the lower courts needed an answer to what if any notice was required prior to the revised policy.
The Chase Bank case was one of three cases newly granted for review next Term. The Court also agreed to decide whether one state agency may constitutionally sue another part of the same state government, in order to enforce individual rights that are protected by a federal law. The case is Virginia Office for Protection and Advocacy v. Reinhard, et al. (09-529). That, too, was a case in which the Court had sought advice from the Solicitor General’s office; the SG recommended that the Court hear and decide the case, and then to rule that such lawsuits are not infringements on state sovereignty.
In addition, the Court agreed to decide, in a California murder case, whether a state must have clear-cut deadlines for a prison inmate’s filing of challenges to his conviction, if delay in pursuing such a plea is going to be used to scuttle a later attempt to get legal relief in a federal habeas case. Federal habeas cases are to be dismissed if the state inmate had failed to satisfy a procedural requirement when his case previously was pending in state courts. The new case is Walker v. Martin (09-996).
Among the cases the Court refused on Monday to hear was a test of the constitutionality of holding a partial re-trial of a civil lawsuit, limited solely to a reexamination of punitive damages, when an earlier jury verdict has been overturned on appeal. The case of Wyeth LLC te al., v. Scroggin (09-1123) was a rare attempt to get the Court to clarify the meaning of the civil trial jury right protected by the Constitution’s Seventh Amendment. Wyeth, facing a new punitive damages trial in a case involving women who claimed that they developed breast cancer after prolonged involvement in hormone therapy, contended that the Amendment bars new trials on only partial issues.
The Court’s next opportunity to issue orders granting or denying review of new cases is expected next Monday.
The New York company neither admitted nor denied wrongdoing, but Massachusetts Attorney General Martha Coakley accused Morgan Stanley of providing billions of dollars to subprime lender New Century Financial Corp., and then continuing to do business with the Irvine, Calif., subprime lender even though some of its loans violated guidelines at Morgan Stanley and lending laws in Massachusetts.Morgan Stanley, Massachusetts Settle Subprime Case - WSJ.com
By Renae Merle
Washington Post Staff Writer
Tuesday, June 22, 2010; A13
The Obama administration's marquee foreclosure-prevention initiative continues to struggle, as government data released Monday show that fewer homeowners are enrolling in the program and more are losing their federal mortgage aid.
Lenders enrolled homeowners into the mortgage relief effort, known as Making Home Affordable, at a slower pace last month after federal officials tightened the qualification process. Since the program's launch last year, about 340,000 homeowners have received a permanent loan modification that lowers their mortgage payment for five years.
But a growing number of borrowers are failing to move from the program's initial stage into a permanent loan modification. Lenders have said that many homeowners are failing to make the reduced loan payments and others have not been able to prove they qualify for mortgage assistance. The number of borrowers dropped from the program, about 436,000, eclipses those who have been helped, according to Treasury Department data. More than 100,000 borrowers lost their mortgage aid in May.
About half of the those dropped from the federal program received another type of loan modification from their banks, according to the government data. But housing counselors have complained that those alternative loan modifications are typically not as generous as what the government program offers and often come with hefty upfront fees.
"Obviously it's good to know these people haven't gone through foreclosure yet," said Julia Gordon, senior policy counsel at the Center for Responsible Lending. But there is no guarantee that lenders are offering modifications that will be sustainable for homeowners, she said.
Obama administration officials stressed Monday that Making Home Affordable is just one of several efforts to stabilize the housing sector. The administration unveiled a new "housing score card" pointing to the millions of home buyers who have taken advantage of tax credits worth up to $8,000, while noting that home prices have stabilized and mortgage rates are near historic lows.
The "housing market is significantly better than anyone predicted a year ago," Housing and Urban Development Secretary Shaun Donovan said during a conference call with reporters. "Obviously we're not out of the woods. Our housing market remains fragile."
The latest numbers come as lawmakers prepare to consider on Tuesday a provision to offer up to $3 billion in loans for unemployed homeowners who need help paying their mortgage. The proposal seeks to address an issue that has bedeviled foreclosure- prevention efforts for more than a year: An increasing number of borrowers can't make their loan payments because they have lost their jobs. With little or no income, these borrowers struggle to make even the reduced payments offered under the government foreclosure-prevention program.
The loan-assistance provision, which is being debated as part of financial reform legislation, is modeled after a Pennsylvania program that offers unemployed workers low-interest loans to pay their mortgages. Borrowers are eligible for loans of up to $60,000 that can be repaid with payments as low as $25 a month.
The measure could help 500,000 families who have lost their jobs save their homes, said Rev. Lucy Kolin, a spokesman for PICO, a national network of faith-based community organizations.
"Unemployment is the number one cause of foreclosures, and yet little continues to be done to help these struggling families," he said. "If Congress was willing to bail out the very banks that caused the recession in the first place, they owe it to the American people who are bearing the brunt of the recession's impact to include this provision in the final financial reform legislation."
Feds charge 1,200 people in mortgage fraud crackdown
In a nationwide effort, officials file criminal charges against individuals allegedly responsible for $2.3 billion in fraud. 'These schemes are despicable; they are dangerous to our economy,' Atty. Gen. Eric Holder says.
By E. Scott Reckard, Jim Puzzanghera and Nathaniel Popper, Los Angeles Times
June 18, 2010
Reporting from Orange County, Washington and New
Seeking to show victories against the kind of ground-level fraud that contributed to the housing crash, federal authorities said Thursday that they had filed criminal charges in recent months against 1,200 mortgage brokers and others accused of cheating banks and borrowers of $2.3 billion.
White-collar crime experts said the size and scope of what the government presented Thursday — dubbed Operation Stolen Dreams — represented an unprecedented crackdown on mortgage fraud.
The cases, including criminal charges against more than 30 defendants in Southern California, were announced at news conferences in Washington, New York, Ventura and elsewhere.
They were coordinated by the Obama administration's Financial Fraud Enforcement Task Force, a recent collaboration among a host of federal and state agencies including the FBI, the Department of Housing and Urban Development and state attorneys general.
"We know that mortgage fraud ruins lives, destroys families and devastates whole communities, so attacking the problem from every possible angle is vital," Atty. Gen. Eric Holder said in Washington. "These schemes are despicable, they are dangerous to our economy, and they will not be tolerated."
The numbers reflect a steady increase in the last seven years in the number of open FBI mortgage-fraud cases, to more than 3,000 in May from fewer than 500 in 2003.
The charges filed by federal prosecutors in Los Angeles, Orange and Riverside counties included two cases in Ventura County with a total of 14 defendants, said Andre Birotte, the U.S. attorney based in Los Angeles.
The Ventura County defendants are accused of filing fraudulent loan applications, collecting millions of dollars in fees and commissions, and causing millions of dollars in losses when the homes went into foreclosure, Birotte said in Ventura.
The announcements, coupled with the arrest Tuesday of the former chairman of a large Florida mortgage company on charges of engineering a $1.9-billion fraud, illustrate the two levels of misconduct the government is going after.
Cases like those publicized Thursday are relatively easy to investigate and prosecute, former federal prosecutor John Hueston said. But not always that easy: Separate civil charges were announced against 395 people and companies, suggesting to Hueston that the government had decided not to bring criminal charges in those cases.
Holder said $147 million had been recovered in the civil cases, an amount Hueston said was not that big given the magnitude of the abuses.
Nonetheless, Hueston said, the large number of cases unveiled Thursday would send a serious message with a real deterrent value.
The government seemed to stretch to include every case it could in the tally. Of the criminal defendants listed, 336 already have been convicted and 206 have been sentenced.
In one of the New York cases, a tax preparer is accused of selling fake pay stubs and tax documents to mortgage and real estate brokers, who allegedly used the documents to apply for loans. Authorities said 17 people were indicted as a result of that investigation.
In another New York case, prosecutors allege that a company offered to help struggling homeowners around the country but did nothing once the borrowers paid the firm's upfront fees.
"Preying on hundreds of struggling homeowners who were desperate for any kind of relief, the defendants stole from those who could afford it least," said Neil Barofsky, the special inspector general for the Treasury Department's Troubled Asset Relief Program.
Of the cases unveiled nationwide, some relate to conduct during the housing boom, while others deal with behavior after the meltdown.
"Some of these folks have engaged in one kind of mortgage fraud in one financial environment and a different kind of mortgage fraud in another financial environment," said Preet Bharara, the U.S. attorney for Manhattan.
Copyright © 2010, The Los Angeles Times
The directive is too long to post here, so I've included a link.