First Mortgage Buyer

This week Senator Barack Obama outlined his plan to save the US housing market while speaking to a group of Union members in New York. His plan centers on the modernization of the financial regulatory system as well as a second stimulus package. According to Senator Obama, the regulatory agencies in Washington have let the special interest set the agenda for reform.

The Obama plan is a three prong approach.

1. Modernize the Financial Regulatory System

This includes giving the Fed supervisory authority over any institution where the Fed is a lender of last resort; i.e. Bear Sterns. Obama also wishes to increase disclosure requirements for investment institutions and streamline the entire process of regulation. Currently, many institutions are regulated by multiple agencies with overlapping areas of authority. This makes it difficult to identify who is responsible for enforcing compliance.

2. Help Homeowners Facing Foreclosure

Obama proposes the start of a new Housing Security Program to give lenders an incentive to refinance existing mortgages into fixed 30 year mortgages backed by the federal government. He also proposes closing the Chapter 13 bankruptcy loophole for mortgage companies and defining mortgage fraud and predatory lending at the federal level.

3. $30 billion Economic Stimulus Package Specific to the Mortgage Crisis

The stimulus package would set aside $10 billion in foreclosure prevention for home owners in danger of losing their home. Another $10 billion would go to state and local governments that are facing revenue shortfalls due to the housing market. The rest of the package would be used to extend the length of unemployment benefits for full time workers and offer compensation to many part time workers not currently included in the system.

March 29 (Bloomberg) — President Bush announced plans yesterday to increase government assistance to distressed homeowners in an effort to curb the current crisis in the mortgage industry. This is no doubt in response to pressure from leading Democrats who have been vocal in their criticism toward the administrations “wait and see” approach.

Although no firm details have been announced, the primary target of the Bush plan will be to tackle the problem of “underwater” loans or loans that are larger than the actual value of the property. This will mean that cooperation with lenders will be essential as any strategy will require  the lenders to forgive part of the loan and refinance the remaining principle with backing from the government. The plan will likely require that homeowners remain in their homes, are able to afford the new payments, and that their lender is willing to sign off on the changes.

Thornburg mortgage is just the latest wall street lender on the brink of collapse as mortgage backed securities continue to lose all value. As of Wednesday morning, Thornburg stock had dropped 49% to only $1.50 a share after the company announced that it needed to raise at least $948 million dollars to stay afloat. The plan entails using convertible bonds that will give investors a 27% share in the company, further diluting the already worthless shares for the current share holders. The deal has yet to materialize as investors may be wary after the recent Bear Sterns debacle. Originally scheduled for a Thursday release, the convertible bonds have been pushed back till Monday as Thornburg works to attract potential investors.

Experts say that Thornburg mortgages are not defaulting in large numbers but the current credit crisis has lessened their value as an asset and in turn, Thornburg’s overall equity.

On Friday HUD released a proposed mortgage reform
package designed to help consumers better understand the terms
of the loans they are considering and offering guidelines for shopping
for different products.

The changes, if enacted, will reform the 30-year old
Real Estate Settlement Procedures Act (RESPA).

One feature of The Good Faith Estimate is not going to make lenders
and brokers happy. Changes to YSP disclosure….

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Treasury Secretary Henry M. Paulson, Jr. Thursday released
recommendations from the President’s Working Group on Financial Markets
(PWG.)

To address the current financial situation and to guard against a
repeat in future years the PWG made six broad
recommendations:

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Mortgage interest rates made substantial moves during
the week ended March 6 and 7, but according to surveys conducted by
Freddie Mac and by the Mortgage Bankers Association (MBA) they made the
moves in opposite directions.

Freddie’s Primary Mortgage
Market Survey reported that the 30-year fixed-rate mortgage…

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