StopTheSqueeze.org Newsletter - Americans For Debt Relief Now!

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-- 17 October 2007 --

IT’S YOUR TURN TO ACT.

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Comments to Dissector@mediachannel.org

Events seem to be moving at a fast clip in the credit and loan conundrum with the government and the banks working out a multi-billion dollar scheme while activists and foreclosure victims fight back with a boycott of Countrywide Financial.

I keep being asked by some, is the crisis over? How come you don’t read about it any more? Whoa….If you believe that, I have a bridge I can sell you.

When you look closely, as I try to do at the Business media, I see a crisis that’s just getting started.

Our media often has a bad case of ADD and is easily distracted by the trivial and the appearance of normality. While some outlets like Ml-implode.com and itulip.com continue to offer trenchant analysis, other outlets are showing signs of being bored. The idea that the news audience has a limited attention span is widely believed so it is easier to flit from subject to subject than stay with the bomb in our midst. The number of mortgage-related companies that have “imploded” is now up to 166, but that’s just the tip of an iceberg.

CNN: BANKS ARE BLEEDING

"Prepare for a sea of red ink: Citigroup, JP Morgan Chase, Bank of America and Washington Mutual are all expected to report falling earnings next week, according to CNNMoney.com.

In an attempt to cushion investors from the shock, Citigroup and Washington Mutual both announced upcoming losses last week.

Citigroup expects a 60% drop in earnings, reflecting a $5.9 billion dent from loan losses and subprime write downs. (The actual drop was a staggering 57%)

Washington Mutual expects a 75% drop in quarterly income, with $410 million in total losses and writedowns."

GOVERNMENT PRESSES BANKS TO POOL MONIES AND INTERVENE

On Monday, the plan was announced as AP reported:

"The nation's three largest banks said Monday they will team up to buy tens of billions of dollars in investments that lost value after global credit markets seized up.

The plan is designed to inject more confidence into the market, and increase investor appetite for the short-term debt known as commercial paper. The market for commercial paper, which is crucial for companies to fund short-term borrowing needs, locked up this summer.

But when you jump down a few paragraphs in the story, you find this is a totally self-interested defensive moved in the “CYA” vein:

"This time around, the banks hope to not only prevent credit problems from spreading — but also to bail themselves out. They operate structured investment vehicles, known as SIVs, that reportedly have as much as $400 billion worth of assets. Those could plunge in value unless the credit markets are stabilized."

CREDIT CARDS MAY BE NEXT TO GO?

I have been reading reports that the commercial real estate market is next to go. “Credit Sign Warns: commercial real estate is next,

 "Mounting evidence suggests bubble conditions may be emerging in US commercial real estate valuations, CreditSights warns in a new report on the sector."

A CREDIT CARD COLLAPSE?

And after that> Credit Cards! That is a biggie. The Baltimore Sun Sees that as the next crisis, reporting:

After every financial crisis over the past 10 years, the Federal Reserve has cut interest rates and pumped money into the economy. Each rescue solved the problem - and created a new one.

The next bomb from this chain reaction of bailouts and blowups will be credit-card debt. Hardly anybody is talking about it yet, but banks and consumers are laying the ground for a wave of credit-card defaults, bankruptcies and asset write-offs for 2009 or so.

If true, this is very, very troubling. For more, click here.

Meanwhile, the Wall Street Journal remains pessimistic. Here are some recent headlines:

The United States of Subprime
Data Show Bad Loans
Permeate the Nation;
Pain Could Last Years

On October 11, the Journal reported:

"As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.”

I hadn’t seen that number before--$1.5 TRILLION in Risky Loans made by 2500 institutions. If that is not a big problem, what is?The article continues:

“High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.”

Now this is VERY IMPORTANT—showing that it was not just the poor who were being ripped off with these HIGH COST loans but also “middle-class and wealthier communities. Why did they fall for it? The Journal explains now—AFTER THE FACT, after these practices went on with little media attention for YEARS.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

“DEEPENING WOE”

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.”

So there you have it from a leading financial source—the crisis was deeper than we knew and unlikely to end.

NOT OVER YET

That’s also the opinion of a financial first called Comstock Partners:

The current market rally is based a number of dubious assumptions that are not likely to hold up. The bulls make the case that the credit crisis is over, a hard landing in the economy is not likely, the Fed will continue easing and the market is reasonably valued, if not cheap. Let’s take a look at each of these assertions.

In our view it is far from certain that the credit market problems are over. While it’s true that tensions have eased and companies are not blowing up every day, it’s still unlikely that the markets can return to where they were before the crisis. Confidence between borrowers and lenders remains low while continuing new highs in Euro interbank rates indicates that liquidity has not returned. Longer term, the task of cutting back on risk, reducing debt levels and repairing balance sheets is only in the early stages. In addition, although many analysts believe that financial companies are writing off the kitchen sink in the current quarter, we’re not so sure this is the last of it.

We remember too well that after the collapse of the dot-com bubble, technology companies took sequential writedowns despite assuring everyone that they were finished. Furthermore the housing industry will probably be reporting atrocious numbers over the next few months, and that could uncover even more financial companies with serious problems. Also remember that the people who are saying the crisis is over are mostly the same ones who never saw it coming in the first place.

The Hard Road Ahead

PROTESTS AGAINST COUNTRYWIDE FINANCIAL

No wonder protests are starting. Here’s one from Boston where a national boycotts of COUNTRYWIDE FINANCIAL was announced by NACA. See NACA.COM for more

Countrywide Is Assailed in Protest of Policies - read about it and see the video.

BOYCOTT OF COUNTRYWIDE - ANNOUNCEMENT AND FIRST ACTIONS

(Jamaica Plain, MA) - On Thursday October 11th at 12:00 p.m. at NACA’s headquarters (3593 Washington Street, J.P, MA), a nationwide boycott of Countrywide Financial Corporation will begin. The boycott of the nation’s leading mortgage lender is being led nationally by the Neighborhood Assistance Corporation of America (“NACA”) and locally by the Massachusetts Alliance to Stop Predatory Lenders. NACA is working with other local organizations to take the boycott nationwide.

Thousands of working families are losing their homes to foreclosure because Countrywide has put them in unaffordable mortgages and now refuses to restructure loans to what homeowners can afford. Since Countrywide has become the leader in these predatory practices, NACA has teamed up with the Massachusetts Alliance to kick-off the campaign to get Countrywide to change its practices or be shut down. “Countrywide is the number one example of the abuses in the subprime industry.” states NACA CEO Bruce Marks.

“This boycott includes actions at many of Countrywide’s over one thousand offices nationwide. Angry and frustrated Countrywide borrowers will now be able to take action against them. People thinking about obtaining a Countrywide mortgage or a Certificate of Deposit will be discouraged from funding their predatory activities. By changing or defeating Countrywide, other lenders and servicers will follow.”

Martin Dolloff from Raynham Mass, a Countrywide borrower states “Although we knew the interest rate was not fixed, we were told we could refinance to a fixed within 6-12 months. When we contacted them to do so, they were unwilling to help us.” Boston City Counselor Chuck Turner, spokesperson for the Mass Alliance to Stop Predatory lenders, states, “There are hundreds of thousands of homeowners like Martin with unaffordable mortgages that need to be restructured. It is unconscionable that Countrywide would create a crisis yet be unwilling to resolve it.”

One of America’s chief banking regulators agrees that a standard needs to be in place to help these homeowners before a financial and moral disaster strikes once interest rates reset. FDIC Chairman Sheila Bair has called for a freeze on interest rates on subprime adjustable-rate mortgages (ARM’s) for many homeowners. “Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it.” So far, Countrywide isn’t listening. That’s why NACA and the Massachusetts Alliance Against Predatory Lenders are leading the way to boycott Countrywide. People should not choose Countrywide as their mortgage lender or as a place where they invest their money.

COUNTRYWIDE UNDER INVESTIGATION

This is a company under investigation. Their CEO Angelo R. Mozilo may have engaged his stock selling program in the months before the Calabasas, Calif., lender's shares plunged as the nation's mortgage crisis mushroomed.

FORECLOSURES MOUNT

  "U.S. Foreclosure Filings Nearly Double in September Over Same Month a Year Ago.

THERE ARE SOME NEW LAWS AT THE STATE LEVEL
California reinforces predatory lending law

NavyTimes.com reports: “The predatory lending bill is one of nine new pieces of military-related legislation that Schwarzenegger signed Tuesday.”

Countrywide's 'workouts' fall short, critics say

NEW YORK (CNNMoney.com) -- As the nation's largest home lender and subprime debt collector, Countrywide has been the No. 1 whipping post of the mortgage crisis. Many consumer advocates say that Countrywide's "loan workouts" with troubled subprime...

More info...

And finally, remember the words that Shakespeare put in the mouth of Lord Polonius in Hamlet:

LORD POLONIUS: Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. Shakespeare’s Hamlet, 1603

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