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The Fed announced today it will purchase up to $600 billion in mortgage backed securities issued by Fannie, Freddie and Ginnie Mae.

As a result, 30 year fixed rates drop to 5.50%. This is great news!  What isn’t such great news is that those in need of a “hand up” are NOT going to get it.

Image by robertodevido via Flickr

There are millions of American Tax Payers that given a few months time, forebearance of arrears, or other economic relief, could make good on their financial obligations.  I have spoken with two such people in the past month.  Unfortunately, they will each probably end up losing their home.  And, after the foreclosure, will have a long road ahead before being able to purchase another one.

This Foreclosure Epidemic is not what the lawmakers are striving to solve. Instead, the solution is to prop up the financial institutions, add liquidity to the lending markets, and make sure that those wanting to make purchases, or business investment in the future, will be able to do so.

This is great for our economy, and I believe that it will get the economic wheels put back into motion.

Unfortunately, I think our law makers have fallen shamefully short! There certainly could have been a way to allocate a portion of the $$Billions, potentially $$Trillions to help those most in need, and at the center of this crisis.  The homeowner that is behind on their payments, and facing foreclosure has no relief in sight.  The most damaged from this crisis are the only ones not getting a piece of the action.  They will not get help today, or most likely ever.  And, for years to come, the tightened lending criteria will prevent them from entering the real estate market again.

I think it’s a shame!

Here is some more information for those of you wanting to get your read on.  This is pretty long, but I wanted to re-publish it in it’s entirety:

By Scott Lanman and Dawn Kopecki

Nov. 25 (Bloomberg) — The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.

“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”

The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.

Help for Housing

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.  Fannie and Freddie bonds rallied. The yield premium on Fannie Mae’s five-year debt over similar-maturity Treasuries tumbled 21.5 basis points to 114.7 basis points as of 8:35 a.m. in New York, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

“The cheaper that they could issue their debt, the more aggressively they should be able to buy mortgages in the secondary market,” said Alan Bosworth, director of agency trading at Vining Sparks in Memphis, Tennessee.

Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.

Commercial Paper

The ABS program is similar to the Fed’s effort to bring down the cost of financing for commercial paper, the short-term debt companies issue to finance payrolls and other expenses, because it goes beyond banks.

“What the Fed has been trying to do is get a sense of what works and what doesn’t work,” said Derrick Wulf, who helps manage $70 billion in mostly fixed-income assets at Dwight Asset Management Co. in Burlington, Vermont. “One of the things that has worked is the commercial paper facility.”

Wulf added that “it can certainly improve credit conditions for consumers.”  The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage-backed debt.

‘Continued Disruption’

On the ABS facility, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.

Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.

Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive-compensation restrictions in the October bailout law, the statement said.  The Fed will start buying the direct debt of government-sponsored enterprises — Fannie, Freddie and a dozen federal home loan banks — through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.

Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.

I guess I’m not the only one.  It’s really quite maddening!

Check this out from the AP

Thursday, October 9, 2008

WASHINGTON – Days after it got a federal bailout, American International Group Inc. (AIG) spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company’s meltdown.

AIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85-billion loan from the government it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

The retreat didn’t include anyone from the financial products division that nearly drove AIG under, but lawmakers still were enraged over thousands of dollars spent on outing for executives of AIG’s main US life insurance subsidiary.

“Average Americans are suffering economically. They’re losing their jobs, their homes and their health insurance,” the committee’s chairman, Rep. Henry Waxman, scolded the company during a lengthy opening statement at a hearing Tuesday. “Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation.”

Former AIG CEO Robert Willumstad, who lost his job a day after the Federal Reserve put up the $85 billion on Sept. 16, said he was not familiar with the conference and would not have gone along with it.

“It seems very inappropriate,” Willumstad said in response to questioning from Rep. Elijah Cummings.

“Those executives should be fired,” Democratic presidential candidate Sen. Barack Obama said at a debate with Sen. John McCain on Tuesday, referring to the retreat participants. Obama also said AIG should give the Treasury $440,000 to cover the costs of the retreat.

But Eric Dinallo, superintendent of the New York State Insurance Department, said he could see the value of such a retreat under the circumstances.

“Having been at large global companies and knowing what condition AIG was in … the absolute worst thing that could have happened” would have been for employees and underwriters in its life insurance subsidiary to flee the company.

“I do agree there is some profligate spending there, but the concept of bringing all the major employees together … to ensure that the $85 billion could be as greatly as possible paid back, would have been not a crazy corporate decision,” Dinallo told the House committee.

The hearing disclosed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released by the committee, which is examining the chain of events that forced the government to bail out the conglomerate.

The panel sharply criticized AIG’s former top executives, who cast blame on each other for the company’s financial woes.

“You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country,” said Rep. Carolyn Maloney. “You were just gambling billions, possibly trillions of dollars.”

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept the $85-billion government loan that gives the US the right to an 80 percent stake in the company.

Waxman unveiled documents showing AIG executives hid the full extent of the firm’s risky financial products from auditors, both outside and inside the firm, as losses mounted.

For instance, federal regulators at the Office of Thrift Supervision warned in March that “corporate oversight of AIG Financial Products … lack critical elements of independence.” At the same time, PricewaterhouseCoopers confidentially warned the company that the “root cause” of its mounting problems was denying internal overseers in charge of limiting AIG’s exposure access to what was going on in its highly leveraged financial products branch.

Waxman also released testimony from former AIG auditor Joseph St. Denis, who resigned after being blocked from giving his input on how the firm estimated its liabilities.

Three former AIG executives were summoned to appear before the hearing. One of them, Maurice “Hank” Greenberg – who ran AIG for 38 years until 2005 – canceled his appearance citing illness but submitted prepared testimony. In it, he blamed the company’s financial woes on his successors, former CEOs Martin Sullivan and Willumstad.

“When I left AIG, the company operated in 130 countries and employed approximately 92,000 people,” Greenberg said. “Today, the company we built up over almost four decades has been virtually destroyed.”

Sullivan and Willumstad, in turn, cast much of the blame on accounting rules that forced AIG to take tens of billions of dollars in losses stemming from exposure to toxic mortgage-related securities.

Lawmakers also upbraided Sullivan, who ran the firm from 2005 until June of this year, for urging AIG’s board of directors to waive pay guidelines to win a $5-million bonus for 2007 – even as the company lost $5 billion in the 4th quarter of that year. Sullivan countered that he was mainly concerned with helping other senior executives.