Congress finds it hard to let Federal Helium Program run out of gas
http://youtu.be/GRkrYzG4YNE
If you think this is an easy decision, read the article and the first “reader comment” (by Ferguson Foont). at: http://www.washingtonpost.com/politics/federal-helium-program-how-temporary-becomes-forever/2013/04/26/80ef1148-adb8-11e2-98ef-d1072ed3cc27_story_1.htmImagine a world without balloons (VIDEO) Georgia Congressional Representative, Hank Johnson, on the helium debate. (Copied from C-SPAN.)If you are interested in other subjects that Congressional Representative Hank Johnson has spoken about, watch ‘Hank Johnson Guam Capsizing’
and, Congressman Hank Johnson on 'midgets'.
November 5, 2012
Congressman Brad Sherman5000 Van Nuys Blvd. - Suite 420
Sherman Oaks, CA 91403
Dear Congressman Sherman:
I live in the 27th Congressional District. I know you sit on the House Financial Services Committee and its Subcommittee on Capital Markets and Government Sponsored Enterprises, and I know that you also sit on the Subcommittee on Insurance, Housing and Community Opportunity.
Therefore, it seems appropriate that I bring a concern of mine to your attention.
My concern: While reading an article published in the Wall Street Journal on October 2, 2012 titled, New York Firm to Buy Fannie Foreclosures By Alan Zibel, I noticed the author mentioned the terms were the same for both of Fannie Mae’s first two ‘bulk sales’ (of foreclosed single family homes). An outline of the terms of the deals was provided in the article (the last four paragraphs of the article).
It seems the terms of these first two bulk sales may lead to an uncertain, and very long payback period to for the GSE’s - and an even riskier and even longer payback period for any investor(s) that might be the source of funds for the managers of these deals. As long as the deal terms are fully-disclosed to the fund's (voluntary) investors their investments are their business.
However, because of the history of Federal Housing Policy, and because of the history of the GSE’s, I believe deals such as these should be designed in a way which can actually be expected to produce rapid and less risky payment of the purchase price, than it appears the terms of the first two deals will produce.
I hope the committees you sit on will very closely review and monitor these two existing deals, and that you will have independent evaluators advise on, and audit, the structure and payment of future bulk sales of foreclosed single family homes.
The bulk sale of foreclosed single family homes is a serious concern for homeowners, neighborhoods, and for local legislators. I believe the future financial success of these bulk sales is a critical element of the bulk sales strategy.
In the context of the GSA’s, it appears the terms of these first two deals were designed to move foreclosed homes off the GSE’s balance sheet, and to claim the 'sales agreement' as an asset.
Thank you very much for this opportunity to express my concern.Sincerely,
Bill George
Cc. Congressman Gary Miller
2349 Rayburn House Office BuildingWashington, DC 20515
Background Information:
(1) Private Equity’s Foreclosure Binge (& Purge) By Michael L Boyer pub. at Seeking Alpha, October 23, 2012 - at: http://seekingalpha.com/article/941291-private-equity-s-foreclosure-binge-purge#comments_header
(2) The Institutional Home Buying Bubble By Bill George - Posterous - at:
http://billsplace.posterous.com/the-institutional-home-buying-bubble
Don't forget the role of the rating agencies in the financial crisis. In the 1975 the U.S. Congress designated the Nationally Recognized Statistical Rating Organizations (NRSRO's). When Congress passed the legislation anointing the NRSRO’s it gave this limited number of organizations oligopoly status and unique competitive advantage. At the same time, Congress appointed the Securities and Exchange Commission as regulator of the NRSRO's.
Most investment advisors and portfolio managers use rating agency guidelines (ratings) to assist their evaluation of the quality and risk associated with the securities they purchase* and fiduciaries are restricted by law as to the minimum rating level from which they can select the investments they can purchase and manage. So, the rating agencies provide a seal of approval, so to speak, for the securities and companies they rate.
* In most cases, the ratings securities an investment advisor, or a portfolio manager will use are defined in a prospectus, offering circular, or by some other form of disclosure.
If you would like to see a CEO of a rating agency squirm, watch and listen to, The Role of The Rating Agencies
and Too Little, Too Late
The Wall Street Journal “Smart Money” Will Short Sales Hit Home Prices? By Anna Maria Andriotis - pub. August 22, 2012
Why is there a ‘shadow inventory’ of homes?
In last quarter of 2008, U.S. banks and their lobbyists pushed the U.S. Congress to force the Financial Accounting Standards Board (FASB) to postpone the implementation of mark-to-market accounting (FAS #157).* The FASB eventually acquiesced. So, after the acquiescence, banks and other collateralized mortgage obligation [CMO] investors can continue to carry these investments at origination value, rather than at the investment’s current market value.
But, if a bank or other mortgage investor forecloses, renegotiates the mortgage, or sells the home (the collateral) the new ‘book value’ of the investment is based upon the new selling price (or mortgage value) - as determined by the terms of the new deal (auction, renegotiation, or sale).
By not foreclosing, renegotiating, or formally taking back properties (REO) banks and other mortgage investors can, to some extent, manage what their losses appear to be, and hopefully offset the losses - they recognize - against other revenue, over time.
Key-words-search: “Congress Helped Banks Defang Key Rule” By Susan Pulliam & Tom McGinty WSJ 6/3/2009 | Professor Adam Levitin Congressional testimony “Federal Regulators Don’t Want to Know” YouTube | Zombie Banks | Japan Lost Decade (Please note that, at the beginning of Japan’s lost decade our current Treasury Secretary, Timothy Geithner was living and working in Japan as a Treasury Department attaché in the U.S. Embassy.)
* See, FAS #157 [mark-to-market accounting] and scroll down to the section heading: Effect on subprime crisis and Emergency Economic Stabilization Act of 2008 , at http://en.wikipedia.org/wiki/Mark-to-market_accounting
Federal Regulators Don't Want To Know
I find that, when discussing The Shadow Inventory, almost all real estate specialists, lawyers, regulators and many financial analysts can’t tie one very significant cause into the conversation.
The very significant cause that is missed is a rational explanation of why banks and other mortgage investors are so reluctant to liquidate (or renegotiate) bad investments.
Why do they hold significant amounts of mortgage investments which have little hope of being profitable (over the long term)? When a mortgage is in serious default, why don’t mortgage investors accept a ‘short sale’ - and why do they allow a property to go into the potentially higher loss alternative of foreclosure?
I believe the key to understanding why mortgage investors appear to be behaving irrationally, is to understand the implications of the delay in the implementation of Financial Accounting Standard #157 (mark-to-market accounting).(1)
To understand the implications of the delay in the implementation of FAS #157 read an article from the Wall Street Journal titled, Congress Helped Banks Defang Key Rule By Susan Pulliam & Tom McGinty | pub. 6/3/2009.(2)
Then watch Georgetown University Law Professor, Adam Levitin’s Congressional testimony titled, Federal Regulators Don’t Want to Know . . . (3)
The point that I believe most commenters miss:
The postponement of the implementation of mark-to-market accounting (FAS 157) gives banks and other mortgage (product) investors the opportunity to delay recognition of their market losses until legal ownership of the property changes (foreclosure). Thus, for the investor, the hoped for offset of losses against future revenue is 'the gating factor’ for the liquidation of the shadow inventory.
Most mortgage investors are institutions. These institutions want to delay the recognition of, and the reporting reporting of, any losses to their investors - and to their regulators - for as long as possible.
As Professor Levitin explains in his Congressional testimony, these institutional investors hope to offset losses against income (fees and penalty revenue) over the next decade.
So, the shadow inventory seems to be a consequence of the rational ‘work-out’ in a world in which institutions can carry (and report) highly depreciated assets at (fantasy) origination value.
P.S. I believe in creative destruction.(4)
Footnotes:
1. See Wikipedia Mark-to-Market accounting scroll to, Effect on subprime crisis and Emergency Economic Stabilization Act of 2008, at: http://en.wikipedia.org/wiki/Mark-to-market_accounting
2. Congress Helped Banks Defang Key Rule By Susan Pulliam & Tom McGinty | pub. 6/3/2009. http://online.wsj.com/article/SB124396078596677535.html
3. Georgetown University Law Professor, Adam Levitin’s Congressional testimony titled, Federal Regulators Don’t Want to Know . . . at: http://youtu.be/ibgdgl0PoBw
4. Creative Destruction (Shumpeter) see: http://en.wikipedia.org/wiki/Creative_destruction
End Note: Even some fairly sophisticated observers can’t put the delay in the implementation of FAS 157 into its proper perspective. Why do mortgage investors prefer foreclosure over a short sale? Watch Congressman Bobby Scott (D-VA) question a panel of mortgage professionals asking, ‘Are there things in accounting principals that we need to change to get everybody to do what’s in everybody's best interests?’at:
Then listen to Thomas Cox, of Main Attorney’s Saving Homes Project, answer Rep. Scott. Mr. Cox emphasizes a different point (the conflict of interest created by servicer fee revenue) in The Short Sale Conundrum - Misaligned Incentives of Mortgage Servicers, at: and when James Kowalski, a Florida Trial Attorney for Saving Home Project, gets his turn he moves to The MERS Mess. Mr. Kawolski explains the increase in the shadow inventory as a documentation problem rather than an accounting problem, at:
I recently watched a U.S. House of Representatives Judiciary Committee Hearing on C-SPAN. The hearing, which was held on December 15, 2010, was titled “Mortgage Services and Foreclosure Practices”.1 The testimony and the questions and answers in the hearing provided a significant amount of interesting information about the processes, and the legal and practical issues surrounding the mortgage servicing industry, and the Mortgage Electronic Registration System (MERS).
Because I followed the history of Congress’s involvement in pressuring the Financial Accounting Standards Board (FASB) to delay the implementation of FAS #157 in early 2009.2 I found a question, which was asked by Congressman Bobby Scott (D. VA) troubling.
At approximately 1 hour 36 minutes into the hearing Congressman Scott asked, in essence, if there was anything in “accounting standards” that might provide incentives for mortgage investors and mortgage servicers not to agree to short sales and to prefer alternatives that might be less advantageous for all parties.
I was surprised by the question because of Congress’ significant role in pressuring the FASB for a delay in FAS #157 and I was also bit surprised that none of the witnesses could directly answer the question - from an accounting standards perspective. In general, the witnesses only discussed the mis-alignment of incentives, where mortgage pooling and servicing agreements provide ongoing revenue for servicers when a short sale is not agreed to and a foreclosure is delayed.3
Footnotes:
1. The December 15, 2010 House Judiciary Committee “Mortgage Services and Foreclosure Practices” hearing may be seen at: http://www.c-spanvideo.org/program/297095-1
2. See a Wall Street Journal article titled, Congress Helped Banks Defang Key Rule By Susan Pulliam and Tom McGinty pub. 6/3/2009 at: http://online.wsj.com/article/SB124396078596677535.html Also see, For Your Reading Pleasure By Jack Ciesielski pub. in the Analyst’s Accounting Observer 2/25/2010 at: http://www.accountingobserver.com/PublicBlog/tabid/54/EntryId/12583/For-Your-Reading-Pleasure.aspx
3. Under the typical mortgage securitization “Pooling and Servicing Agreements” mortgage investors agree to pay mortgage servicers fees for arranging: home inspections, arranging broker ‘opinion of value’, preparing and filing documents, general documentation, notifications, forced insurance fees, and etc.
To see what Newt Gingrich recently said about amnesty for illegal immigrants, and ponder it carefully “in context” I searched for the transcript of that portion of the November 22, 2011 National Security Debate. I found the snippet of the CNN transcript and a video-clip of Gingrich’s statement published on a website called The Voice of Deseret. You might find Gingrich’s complete quote interesting: http://voice-of-deseret.blogspot.com/2011/11/newt-gingrich-touts-amnesty-for-illegal.html .
After reading and pondering, I wondered: How far off is the implementation of ‘the path to amnesty’ portion of the Gingrich’s ‘comprehensive immigration reform’ program?
If the processes for the path to amnesty begin only after we have controlled the U.S.’s borders (stopped illegal immigration and brought the legal immigration process under control) Gingrich’s suggestion doesn’t seem so radical. However, I believe it’s safe to say those first conditions - controlling our borders, stopping illegal immigration and bringing the legal immigration process under control - seem a long way off.
The whole issue raises a few questions: Is it necessary for the U.S. to notify illegal boarder crossers that if they enter the U.S. illegally after a certain (past or future) date they absolutely will not qualify for any program for amnesty for illegal immigrants. For such notification, is there a legally required notification process? Would such notification be done in English?
Note: All of the media reports, and transcripts of Gingrich’s statement which I’ve read improperly identify the Krieble Foundation [ http://www.krieble.org/Websites/krieble/Images/files/Red%20Card%20Solution%20White%20Paper.pdf ] as the Creeble Foundation.