What Happens After The Bailout: An Effort At Continued Transparency

By
Real Estate Agent with Howard Hanna Cleveland City Office

We can kvetch all we want but The Emergency Economic Stabilization Act of 2008 (EESA) is now the law. It makes sense for us to follow what happens from here on out. Active Rain seems like a good place to do this. Many people who read Active Rain are not in the real estate business and frankly, maybe there are readers who can contribute to the pool of information I'm going to try to track here. I hope so! (Yes, you Rainers too!)

To start, as the NY Times' Mark Lander and Edmund Andrews explain, now EESA is law, and now Treasury begins  to set up the Administrative end of this.  The devil of course, is in the details.

Good points from this article:

1. It will take some time for Paulson et al to set up a staff. Supposedly, Treasury wants to outsource most of the work and is estimating what they call a small in house staff of about two dozen people.

2. The outsourcing will be to "....professionals who will oversee huge portfolios of bonds and other securities for a management fee...."

3. They do not expect this new entity to be fully operational until after the Nov. 4th election.

4. They have to work on laws that will take care of (!) conflict of interest issues.  In other words, if a Goldman Sachs staffer/executive winds up working for us as an asset manager, they will have two duties: one to us, the taxpayers, to make sure we are not overspending, and one to their company shareholders to make as much as possible.  Yes, the devil is in the details.

My thought: can't people who have the expertise from these private companies take a leave of absence for a year so there is not a conflict of interest? I'm asking sincerely, because 1) maybe this is too cost prohibitive for us.  but 2) it could mean some of the financial peeps who have lost their jobs can take short term positions as replacements for the men and women who come to work for us. They will be working for us, won't they??  Why not a one year term for everyone from a private company who comes to work in this new wing of the government. Then they go back to their old jobs.

This idea may sound hard to make happen, but in reality (according to the Times article, there has been at least one person who was the managing director of Pimco, who offered his services for free.  We could pay them (they plan to do this anyway) but at least while he/she is working for us, they won't have a conflict. (Now you can all tell me why this won't work LOL)

Now to the real estate related stuff, meaning sub prime mortgage assets (if you can call them that).  Lander and Andrews point out that in order for an entire Trust to be purchased by the Feds (and apparently a lot of the sub prime assets are in the form of Trusts) they would have to have 100% agreement from the Trustees.  So they plan on only purchasing half of the assets in these cases which circumvents the need for 100% approval.

Also this quote: "....Treasury officials have emphasized that the government will also be buying up whole mortgages, which have not been securitized, and that it may well buy whole mortgages through one-on-one negotiations with individualbanks. Officials said they would probably experiment with other approaches as well...."

I'm going to see if the financialservices.com site (run by Congress) is allowing visitors (they were 'down' all last week, so many people wanted to read the text of the proposed Bill....the final Bill is up to 510 pages or so....).  As soon as I can find  a link that works, I will link it here.  (Do any of you have such a link? If so please link)

More of the 'devil in the details' to follow as we go along. Here in NE Ohio we will be particularly interested in how the mortgage foreclosure aspect of the EESA is set up and handled.

Please link anything here you think is of value!

Peace Out -3C

UPDATE: so far, this is the only place I can find what might be the full text of the EESA. It's the Sun Light Foundation's Public Mark Up site.

Finally, the financialservices.gov (US House) is finally loading so I will link it here.  (Maybe people are already tired of reading it! lol)

h/t to Elaine Reese for pointing out Jim Crawford's posts on the EESA. To say the least, he's not a fan of it lol.  In any event, here is a good post by him listing the 'earmarks' added into this Act. For those of you who don't want to read all 500 or so pages, these earmarks may be an eye opener.

10.05.08 - Wachovia was set to be purchased by Citi and then Wells Fargo got into the mix, most of you already know this.  Here is today's update on the continuing saga, now a judge has blocked the Wells deal, for now. NYTimes article here.

Also today, good stories linked here in NYT about how Europe and the European Union is grappling with same economic/bank failure issues.

10/8/08  They put it this way: calming London in order to stablize the World economy.  Britain moves closer to US Bailout sytem in stead of a 'prn' or as needed basis

Also today, Paulson says stay calm and Bernanke orders a small Federal rate cut.  I'm thinking (and I'm not an economist nor do I play one on tv) one more week until The World including us can get a handle on initial steps the Feds and the World markets are taking, and I doubt the stock market will really calm down until then.

On a positive note, we had 10% more sales as a company this past month than we did in 2007.  And NAR announced that there is a significant increase in the number of homes 'pending' (under contract, waiting to transfer ownership) in September.  That matches what happened with us locally, especially in our office, we had a terrific volume in September.

Just wanted to point out that there are buyers realizing the interest rates are still great and prices (for them) are terrific. 

OCTOBER 9th Update: Okay I knew this would wind up being a long post but I'm about to make it longer.  Here is an early look at today's WSJ article on McCain's proposed home mortgage rescue idea. The reporters claim to know what he plans to do.  If they are correct, they will be allowing some of the predatory lenders get rescue money too.  I don't really know if this article is accurate, but I'm going to add a total  cut and paste here:

OCTOBER 9, 2008 JOHN D. MCKINNON

McCain Reshuffles Rescue Deal

Proposal Could Help Homeowners but Also Reward Predatory Mortgage Lenders

By

JOHN D. MCKINNON

WASHINGTON -- Sen. John McCain's $300 billion plan to help homeowners struggling with mortgage debt carries big potential benefits for the troubled real-estate sector, but could reduce the funds available for rescuing banks.

The proposal, which Sen. McCain announced during Tuesday night's presidential debate with Sen. Barack Obama, also could make winners out of investors -- including predatory mortgage lenders -- that the Bush administration and Congress have tried to exclude from the government's largesse. And it raises knotty administrative questions about how the government would handle potentially huge numbers of mortgage refinancings. Among the challenges: screening out undeserving homeowners who might seek to qualify for help.

The McCain plan highlights the continuing struggles of Washington policy makers -- and Sen. McCain, the Republican presidential nominee, in particular -- in coming up with a workable solution to the interwoven problems of the real-estate and financial sectors. Just two weeks ago, Sen. McCain threw his weight behind House conservatives who wanted to shrink the government's role in the rescue. With this week's announcement, Sen. McCain is seeking to maximize government assistance, while focusing it on homeowners.

McCain advisers believe the plan would require no new legislation and is a less-costly prescription for real-estate contagion than buying lots of risky mortgage-related securities, as the recently passed $700 billion rescue measure aims to do. But some analysts said it could drain money away from the rescue effort for banks.

The plan focuses on using much of the government's rescue powers to buy individual mortgages that homeowners are having trouble paying.

An earlier mortgage-assistance plan passed by Congress over the summer tried to do something similar, but with a key difference: It forces lenders and investors to take a loss of principal -- a "haircut" -- on the troubled mortgages, in exchange for the government's help. That program appears to be off to a slow start, partly because lenders have been reluctant to accept the large losses they now face on troubled loans, according to analysts.

Another possible reason is that some up-front funding for last summer's $300 billion program -- which was to come from fees paid by Fannie Mae and Freddie Mac -- could be in some doubt since the two mortgage giants were taken over by the government last month.

Sen. McCain's program would effectively reinvent the homeowner program to speed up the process. The government would buy the existing troubled loans at face value -- absorbing the haircut itself -- and the Federal Housing Administration would issue a new, federally guaranteed 30-year fixed-rate loan, based on the property's present value, at a "manageable" interest rate, the McCain camp said.

Treasury Secretary Henry Paulson said he needs "to learn more about the [McCain] plan," but that the administration is already working to help prevent foreclosures.

The McCain plan envisions combining the resources of last summer's $300 billion housing bill, the $700 billion financial-rescue plan enacted last week, and the still-considerable buying capacity of Fannie and Freddie.

If it works as planned, the initiative would help qualifying homeowners and would put a floor under declining housing prices. It also could help banks by shoring up the value of their troubled mortgage-related assets, McCain advisers said. That, in turn, could reduce the need for buying up troubled financial assets. The plan also could free up credit, lowering interest rates and further stimulating the real-estate sector.

"By starting with the homeowner and working up, you accomplish some of the [same] objectives of the financial-stabilization plans that we've seen come out of Congress," said McCain economic adviser Doug Holtz-Eakin.

The McCain plan is similar in some respects to the Depression-era Home Owners' Loan Corp., which made 1 million refinancing loans totaling $3 billion to help prevent foreclosures. In recent months, some prominent academic economists have suggested similar programs as an alternative to the Bush administration's rescue plan.

Whatever its economic effects, its focus on homeowners is likely to have considerable political appeal.

The Obama camp attacked the plan as a poorly designed giveaway to the least-deserving lenders. "It's a huge gift to the least-responsible financial institutions, some of whom have committed fraud, that leaves the taxpayers with guaranteed losses, all of the downside risk, and none of the upside," said Jason Furman, an adviser to Sen. Obama. "It's an example of John McCain being erratic and walking away from the principles that he purported to support as recently as a week ago."

It wasn't clear whether the government would share in the eventual profits homeowners might realize when they sell their homes.

By relying on existing rescue resources, the McCain plan could reduce the amount of money available for buying financial assets from institutions, said Karen Petrou, managing partner of Federal Financial Analytics.

-Deborah Solomon contributed to this article.

Write to

John D. McKinnon at john.mckinnon@wsj.com

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Rainmaker
658,930
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

I am in a wait and see mode on this bailout.  I am afraid it will cost us a fortune and only be a bandaid. I believe congress is responsible for this and doubt they actually fixed it in any meaningful way.

Oct 04, 2008 06:32 AM #1
Rainer
111,655
Carole Cohen
Howard Hanna Cleveland City Office - Cleveland, OH
Realtor, ePRO

Randy, nice to see you and yes, we all are in wait and see mode. I'm just hoping to keep updating this post with new info as it comes in, as to the direction it is all taking.

Oct 04, 2008 07:18 AM #2
Ambassador
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Carole we will soon start to see if this is all that it was promoted to be.  I have a very uneasy feeling in the pit of my stomach.  I hope that it is wrong.

Oct 04, 2008 11:43 AM #3
Rainer
71,971
Elaine Reese, REALTOR® in central Ohio
Real Living HER, Powell Ohio - Powell, OH

Carole, Jim Crawford (Atlanta) has been writing several posts on the subject with quite a bit of info. If you haven't read his posts, you might want to check them out. He has a list of some of the earmarks in one of the posts.

Oct 04, 2008 12:26 PM #4
Rainer
111,655
Carole Cohen
Howard Hanna Cleveland City Office - Cleveland, OH
Realtor, ePRO

George, my stomach feels just like yours and I imagine it's the same around the Country.

Elaine, thanks that was a great tip, all the earmarks, some good most bad, all in one spot

Oct 04, 2008 02:03 PM #5
Ambassador
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. 4Terra Land Brokers .. 828-776-0779 Asheville NC
REAL ESTATE RESOURCES & NETWORK - Asheville, NC
What's Most Important to YOU? Call(828)-776-0779

Carole~

 The late afternoon sun is dapplikng down the evergreens to the path outside my door here in Asheville. A second blooming this season of organic tomatoes is ripening on the vine. There's plenty of clean water in the stream, and (possibly due to rising gas prices?) the air seems even cleaner than before.  If we have to, we can erect a YURT and make-do. AND I still believe we are a creative people here in the USA, despite the enormity of our economic woes.

Having said all that, sometimes....well, especially lately, while observing that over which I have absolutely no control. . .I wonder . . .

Oct 05, 2008 09:02 AM #6
Ambassador
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. 4Terra Land Brokers .. 828-776-0779 Asheville NC
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P.S.

Where did my brothers & sisters go?

Oct 05, 2008 09:05 AM #7
Rainer
111,655
Carole Cohen
Howard Hanna Cleveland City Office - Cleveland, OH
Realtor, ePRO

LOL yes Jane-Anne I think that is perfect, since they have to mint more money anyway lol

It aggravates me a bit that now the economists and main stream media are all over opinions about what might have worked instead of the bail out.  Wimps abound lol.  I wonder too.....

Oct 05, 2008 12:38 PM #8
Rainer
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Aaron Bosshardt
Bosshardt Realty Services, Inc. - Gainesville, FL

I like this blog. It was well timed. Maybe the bailout hasnt worked because it was poorly timed. It took congress at least two weeks to pass it. I think that hurt us all. Time was critical

Nov 13, 2008 08:15 AM #9
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Carole Cohen

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