July 02, 2007

FLASH: The FDIC, realizing the cat is out of the bag and bank collapses are coming, admits "everybody was asleep at the switch". Ruh-roh.

"We clearly have a profound problem," FDIC Chairman Sheila Bair said Friday.

"It is going to get worse before it gets better, and decisive action was required," she added.

"Everybody was asleep at the switch."

It's amazing, after years of out-of-control lending, after years of watching mortgage brokers, lenders, builders, appraisers and realtors game the system, and after years of watching the world's biggest Ponzi Scheme grow unchecked, NOW, just now, do government regulators wake up to the problem? And their solution? Issue non-binding guidelines and hope for the best. Not a good idea.

Good god we are fu*ked.

But the market will take over in lieu of the "asleep at the switch" Fed or Congress doing their job, and credit is tightening anyway. And you know what tighter credit means - even lower demand, even lower home prices, even more defaults, even more foreclosures and even more hedge fund, pension scheme and bank carnage.

Remember, don't have more than $100,000 exposed to any bank account. And since the printing presses will be running soon to prop up failing banks, you might want to rethink having all your savings in US$.

Get ready for impact. We're coming in for landing...

U.S. banking regulators told mortgage lenders Friday to toughen standards for subprime home loans in a belated effort to end abuses that led to a surge in defaults and the highest foreclosure rate in five years.

Lenders, in most cases, should verify income levels instead of relying on borrowers' statements, the Federal Reserve, the Federal Deposit Insurance Corp. and other regulators said in guidelines issued in Washington. They also said banks should consider potential interest-rate increases when judging whether homebuyers can pay off loans.

Mortgage Bankers Association Chairman John Robbins said the new guidelines will "constrain consumer credit choices." The Washington-based group, which represents the mortgage industry, also discouraged Congress from passing legislation that would subject lenders to "rigid underwriting standards and litigation risk," Robbins said in a statement.

38 comments:

Anonymous said...

Keith,

Just chill man. Guidelines are the first step.

After they see how the guidelines are working, they will then issue policy.

California is going to crash hard. Who will qualify for a teaser loan of $1500 a month on a $700,000 house when they need to qualify based on the max loan rate, probably in the 8% range. Hmmm thats loan payments and property tax in the $6k+range or $75k to $80k a year. Assuming 50% goes to a home you need a $150k to $160k in household income to buy a 1/2 decent house in Calfornia.

Only about 6% of the population makes over $160k
But probably 35% of the population lives in a $700k+ house.

EconE said...

A day late and a dollar short...

I mean...

Years late and trillions of dollars short.

and a "non binding" agreement?!?!

oh boy.

Anonymous said...

Putin came to town to look w in the eyes and see what, if anything, is going on in there...

Utterly disturbed, Putin called home and told his people to buy more gold, hence the futures are up this morning.

Anonymous said...

We are so screwed but hey everyone here knew that. Waters wet, Bush is a fool etc.

Anonymous said...

MAYDAY, MAYDAY...SOS...

Anonymous said...

When the FDIC says there's a serious problem and that everyone was asleep at the switch, watch out! Damn, that's scarey

Anonymous said...

>> Everybody was asleep at the switch.

Everybody = all the people, the "experts," who should have known better.

God, I hate "experts." You either know what you're doing, or you don't. If anyone here is an "expert" in something, here's a big FU to you!

London Stud said...

So someone help me out here...

Wife and I have 200k in savings accounts at various banks in the US. These are joint accounts. Are we fully FDIC insured?

keith said...

Remember this is the same crew that didn't know the S&L fiasco was going on until it was too late

Roccman said...

"And since the printing presses will be running soon to prop up failing banks, you might want to rethink having all your savings in US$. "

Ummmm...hey Keith ...NEWSFLASH...since March 23, 2006 no M3 has been reported.

The printing presses have been running non-stop for quite a while now...

The other scary part is other countries printing presses are runnning even faster.

Anonymous said...

London Stud said...

So someone help me out here...

Wife and I have 200k in savings accounts at various banks in the US. These are joint accounts. Are we fully FDIC insured?

July 02, 2007 1:10 PM
------
The aggregate total of all all the accounts held by a account holding entity is only insured by the FDIC up to 100k (250k if its an IRA). Hence you can have 100k in your name, she can have 100k in her name & you both can have 100k in both your names in one bank and be insured for the whole 300k. But you are at the mercy of the bank & the FDIC changing the rules. Note this is all accounts at one bank entity. I recommend that you have no more than 100k in any one bank entity period.

turdly said...

200k in joint accounts is covered. You can also open other accounts using close relatives as beneficiaries and cover another 100k per beneficiary. Your banker will have a lovely confusing pamphlet for yuo regarding this. The key to reading the damn thing is to forget each sentence before reading the next. The rules sometimes do not logically relate, so you can't intertwine them in your mind.
The main sentence to read is the one that says that if the account was set up to decieve the fdic into thinking it was for a benficiary and indeed it is not, they do not have to insure it and there is almost no dispute. So if you put your daughter on it [and here's where I'm guessing] they decide that you are estranged, they may not inure the account. Read it yourself.

Anonymous said...

Thank god Gordon Brown is the new PM!
Wow, finally some one that knows finance.
I'm confident that inflation will now
abate in Britan. HAHAHAH

Veronica Lodge said...

RE: Bank Collapses are coming...

The Shifting Sands of Lies: An Economy and a Stock Market Built on Lies.

What can you say about an economy and a stock market which depends totally and completely on the sustaining power of outright, BLATANT LIES?

V.L.

turdly said...

Forget all those other things I said, there's a link in the title. Click on the link and it'll take you to that pamphlet, and in turn to a really disgusting calculator that asks for bank account numbers and such. What a piece of crap.

Anonymous said...

The BANKING sky is not falling. Relax. As I have stated many times on this blog there is a big difference between Federally Insured Banks and "Lenders" that are facing the subprime risks. Banks by law can only hold so much mortage debt and most of it is from the Agencies which is sound.

Now that said, banks are facing some tough economic times as many of them have about 40 to 60% of their incomes tied to mortgage originations. Some, such as Wells Fargo's recent news, have begun layoffs.

Anonymous said...

everybody?

EVERYBODY??????

Anonymous said...

The leg of the stool that you are forgetting about is litigation and enforcement of penalties from law enforcement. There will be big bucks to be made from collecting fines, fees, back taxes, settlements, etc. from the fallout of this mess. That will happen on a corporate, a company and an individual borrower level and lots of people with the jail cell keys will be having a field day collecting. Many of the people who participated in the abuses not only dug themselves a big hole on bets of ever escalating property values that come down, they also dug themselves a nice big hole with respect to taxes, penalties, fines, etc. from the folks who investigate these train wrecks to see "who shot John" when the smoke clears. This is going to be interesting to watch from the sidelines for anyone who kept their nose clean.

Smug Bastard

Anonymous said...

This wasn't exactly rocket science to notice the thumping pro-real estate propaganda everywhere. Surely every bank examiner got tons of junk mail advertising "low payment" toxic loans, "bad credit no problem."

They weren't "asleep at the switch", they were anaesthetized by fundamentalist right-wing anti-regulatory propaganda. Or thwarted by their political masters who want to drown the government in the bathtub.

Anonymous said...

Wow -- I really had to read this twice in the article, just to be sure I read it right the first time....

"Lenders, in most cases, should verify income levels instead of relying on borrowers' statements, the Federal Reserve, the Federal Deposit Insurance Corp. and other regulators said in guidelines issued in Washington."

....Um, do you THINK SO?

And these guidelines you speak of.... it took until the middle of 2007 to issue them?

Is this the best we can do at the top level of the US Gov't?

Jugador said...

I heard about this on a NPR report where they said the problem with this is that it will make it harder for people with low credit scores and low down payments to afford houses.

Why is it a problem when people with proven track records to not pay their debts can't get access to even more debt?

Guy Daley said...

London stud is a troll people and yet you give (it) perfectly good advice.

How can you tell its a troll?

How often have you seen the name London STUD before? Since when does the English use a term like that to describe themselves unless they are tatooed teeny boppers, hardly somebody that would have accrued $200K.

Who would invest money in the USA when the dollar has been crashing against the sterling for YEARS (evidence sterling hit a 26 year high against US dollar today)

Who would have $200K invested without knowing whether it was insured or not?

Would you answer a question, I've got 200k, should I put it on the red or the black?

The question looked inoccuous enough, but rest assured, that's a troll. Give an honest answer to an honest question.

Hah London Stud? You got money to burn, I've got some investments for you.

billy bob said...

Why do these clownish regulators still have a job? Oh yeah, it's the government. Nobody was fired for the 9-11 screw ups. Nobody was fired for the Iraq screw ups. Nobody is ever fired for anything. That's who we want to run our healthcare system.

Anonymous said...

A "Non binding" agreement???? So they were asleep at the switch and now they're awake. And what are they going to do? Drum roll............NOTHING!!!!!. They were asleep at the switch, they wake up, the train approaches, they decide to watch and see if the switch will switch itself. If the regulators refuse to regulate why are they still collecting a paycheck?

bearmaster said...

The FDIC is just now figuring this out??

This is one difference between now and the late 80's-early 90's.

Back then, if a homeseller wanted to sell his home short and try to reason out a way to handle the difference with the lender, the lender said, F*** U, foreclose or nothing.

But now, lenders have been working mightily to "restructure" loans to keep borrowers in their homes to prevent them from foreclosing. I could see this delaying the downturn in So Cal (somewhat) and stretching things out for a while, but it can't be put off. Lenders will run out of fingers and toes with which to plug the holes in the dam.

Frank@NeverColdCall.com said...

Goverment regulation is never the answer. It rarely solves the problem and almost always causes more problems.

Let the free market work itself out. You pointed out that it's already happening. The stupid will get flushed out and the smart will survive. The way it always works in a free market.

Anonymous said...

>> Wife and I have 200k in savings accounts at various banks in the US. These are joint accounts. Are we fully FDIC insured?

Yes - until the US Gov becomes insolvent, which many would argue happened decades ago. I believe that if and when the day comes that your money disappears from the bank overnight, you ain't getting it back no matter what...

Anonymous said...

Where else should one put his money?

K.W. - Southern Ca. said...

Just remember Doctors, Lawyers (the 6% you are refering to) went into debt on the 2-4mil house.

Income brackets won't insulate people from heavy losses.

~~~
Just chill man. Guidelines are the first step.

After they see how the guidelines are working, they will then issue policy.

California is going to crash hard. Who will qualify for a teaser loan of $1500 a month on a $700,000 house when they need to qualify based on the max loan rate, probably in the 8% range. Hmmm thats loan payments and property tax in the $6k+range or $75k to $80k a year. Assuming 50% goes to a home you need a $150k to $160k in household income to buy a 1/2 decent house in Calfornia.

Only about 6% of the population makes over $160k
But probably 35% of the population lives in a $700k+ house.

K.W. - Southern Ca. said...

Those who structured the housing game have known this from the start.

They just don't want to create panic by letting the truth out - hoping to cash in on a profit before the bottom falls out.

There are firms (Corporate Vultures) who will be diligent in exposing the truth behind all the crooks within the housing chain.

Of course, they profit by doing so, but it's been long overdue for the truth to be told about this mess.


bearmaster said...
The FDIC is just now figuring this out??

This is one difference between now and the late 80's-early 90's.

Back then, if a homeseller wanted to sell his home short and try to reason out a way to handle the difference with the lender, the lender said, F*** U, foreclose or nothing.

But now, lenders have been working mightily to "restructure" loans to keep borrowers in their homes to prevent them from foreclosing. I could see this delaying the downturn in So Cal (somewhat) and stretching things out for a while, but it can't be put off. Lenders will run out of fingers and toes with which to plug the holes in the dam.

Anonymous said...

Lenders will run out of fingers and toes with which to plug the holes in the dam.

______

Looks like it's already happened.

Anonymous said...

roccman sez "Ummmm...hey Keith ...NEWSFLASH...since March 23, 2006 no M3 has been reported."

M3 is still growing at 10%-12%. Funny how that pretty much matches the price inflation we see in purchases of everyday things...

http://tinyurl.com/m7bs7

J at IHB and HFF said...

The bubble lending was and is government policy: Fed Takeover of Subprimes Renews Risk in Mortgage Lending.

Anonymous said...

Anonymous said...
London Stud said...

So someone help me out here...

Wife and I have 200k in savings accounts at various banks in the US. These are joint accounts. Are we fully FDIC insured?

July 02, 2007 1:10 PM
------
The aggregate total of all all the accounts held by a account holding entity is only insured by the FDIC up to 100k (250k if its an IRA). Hence you can have 100k in your name, she can have 100k in her name & you both can have 100k in both your names in one bank and be insured for the whole 300k. But you are at the mercy of the bank & the FDIC changing the rules. Note this is all accounts at one bank entity. I recommend that you have no more than 100k in any one bank entity period.

July 02, 2007 2:14 PM



BUY GOLD!

Anonymous said...

Jugador said...
I heard about this on a NPR report where they said the problem with this is that it will make it harder for people with low credit scores and low down payments to afford houses.


Those people should not be given $300-700,000 loans in the first place!!!!!

Your credit score is crap bec you suck at keeping your financial house in order. NOT EVERYONE IS EQUAL!!!

Anonymous said...

billy bob said...
Why do these clownish regulators still have a job? Oh yeah, it's the government. Nobody was fired for the 9-11 screw ups. Nobody was fired for the Iraq screw ups. Nobody is ever fired for anything. That's who we want to run our healthcare system.

July 02, 2007 5:14 PM


Give thanks to Emperor Bush II.

Anonymous said...

But now, lenders have been working mightily to "restructure" loans to keep borrowers in their homes to prevent them from foreclosing.
----------

This is bec the lenders want to squeeze them for all they got. Lenders don't want to sell crappy houses in a crappy market either.

The North Coast said...

London, you should be insured, if you have less than $100K in each institution. At this time, your accounts at different institutions are not aggregated for the purpose of calculating your insurance entitlement.

However, you and your wife have joint accounts. Each of these accounts will be entitled to only $100K insurance. If you have two accounts at the same institution, they WILL be aggregated, which means that if, say, you have $200K between 3 joint accts at the same institution, you are insured to only $100K.

Same principal for a situation where the husband has an acct, the wife has an acct, and they have a 3rd joint acct. You and your wife will then be treated as two different customers, and your joint acct will be aggregated. Your insurance coverage will be $100K each no matter how much you have in those accts.