OLYMPIA — Attorney General Rob McKenna today urged the chairman of American International Group (AIG) to disclose the names of executives who received bonuses between September 2008 and the present, and how federal bailout money was used for that compensation.
“My office has joined with 18 other attorneys general to demand a full accounting of how millions of taxpayer dollars were transferred to AIG executives in the form of bonuses,” McKenna said. “We’ve demanded the information needed to confirm that the billions loaned to AIG are being used as intended – to stabilize the company and help unwind the mortgage-backed securities that damaged our economy.”
The letter asks Edward M. Liddy, the chairman and chief executive officer of AIG, to supply a list of all individuals in the AIG Financial Products subsidiary who received bonus compensation, the source of the compensation, copies of employment contracts of individuals who received bonuses and whether federal money was used to compensate the executives.
Showing posts with label Financial Crisis in America. Show all posts
Showing posts with label Financial Crisis in America. Show all posts
Monday, March 23, 2009
Friday, March 20, 2009
"Read the Bill" Petition to Congress
In its haste to stop economic hemorrhaging, Congress rushed the Stimulus Bill through both chambers without bothering to read it.
Very few members of Congress actually read legislation before a vote is taken. Unfortunately, the same is true for state legislatures. All too often, legislators rely on lobbyists or caucus leadership for information about pending legislation.
Below, I have posted a letter I received from the Sunlight Foundation and a copy of a petition to Congress to implement a 72 hour publication rule before Congress votes on a bill. I urge you to sign this petition today.
Sunlighter--
Our fears have materialized about what happens when no one reads legislation. Now we have proof that 13 hours wasn't enough time to read the 1100 page Stimulus Bill. Reports have emerged that Senator Dodd, at the behest of the administration, inserted an unnoticed loophole that allowed AIG employees to receive exorbitant bonuses.
I am certain that if Congress had put that legislation online for 72 hours before it was considered -- if they had a chance to read it, or if you did -- someone might have caught that last minute loophole. That's why we want you to sign the petition to urge Congress to Read the Bill:
http://www.ReadTheBill.org/petition
It's ridiculous that members of Congress don't read the legislation they vote on, but with your help, we can tell Congress that we expect it to do its job. Most people don't know that lawmakers fail to read the bills they vote on. We need your help to change this. Forward this email onto your friends and ask them to sign the Read The Bill petition.
Thanks, Ellen Miller
Executive Director, Sunlight Foundation
P.S. Read more about the AIG bonus loophole at the Sunlight Foundation blog.
Very few members of Congress actually read legislation before a vote is taken. Unfortunately, the same is true for state legislatures. All too often, legislators rely on lobbyists or caucus leadership for information about pending legislation.
Below, I have posted a letter I received from the Sunlight Foundation and a copy of a petition to Congress to implement a 72 hour publication rule before Congress votes on a bill. I urge you to sign this petition today.
Sunlighter--
Our fears have materialized about what happens when no one reads legislation. Now we have proof that 13 hours wasn't enough time to read the 1100 page Stimulus Bill. Reports have emerged that Senator Dodd, at the behest of the administration, inserted an unnoticed loophole that allowed AIG employees to receive exorbitant bonuses.
I am certain that if Congress had put that legislation online for 72 hours before it was considered -- if they had a chance to read it, or if you did -- someone might have caught that last minute loophole. That's why we want you to sign the petition to urge Congress to Read the Bill:
http://www.ReadTheBill.org/petition
It's ridiculous that members of Congress don't read the legislation they vote on, but with your help, we can tell Congress that we expect it to do its job. Most people don't know that lawmakers fail to read the bills they vote on. We need your help to change this. Forward this email onto your friends and ask them to sign the Read The Bill petition.
Thanks, Ellen Miller
Executive Director, Sunlight Foundation
P.S. Read more about the AIG bonus loophole at the Sunlight Foundation blog.
Bailouts will cost Taxpayers Trillions of Dollars
The U.S. Government is undertaking an unprecedented and very expensive effort to rescue the economy and prevent an economic depression.
CNN Money has added up the dollars allocated to the economic rescue to date; and, with the Fed's addition of $1.1 Trillion, we are looking at an allocation of $13.5 trillion dollars, of which approximately $2.2 Trillion has actually been spent.
Some economists estimate that it will cost double what has already been allocated to save the economy.
For additional details about where the money went, click on the plus signs in the chart below.
The link to CNN's chart can be found here: http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html
Today's trivia question - if we divided $13.5 Trillion by the adult population in America, how much is each taxpayer's share?
Hints for answering today's trivia question:
As of February 2009, the United States has an estimated resident population of 306 million. People under 20 years of age make up over a quarter of the U.S. population (27.6%), and people age 65 and over made up one-eighth (12.6%) in 2007. The national median age was 36.7 years. http://en.wikipedia.org/wiki/Demographics_of_the_United_States
CNN Money has added up the dollars allocated to the economic rescue to date; and, with the Fed's addition of $1.1 Trillion, we are looking at an allocation of $13.5 trillion dollars, of which approximately $2.2 Trillion has actually been spent.
Some economists estimate that it will cost double what has already been allocated to save the economy.
For additional details about where the money went, click on the plus signs in the chart below.
The link to CNN's chart can be found here: http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html
Today's trivia question - if we divided $13.5 Trillion by the adult population in America, how much is each taxpayer's share?
Hints for answering today's trivia question:
A trillion is a thousand billion, which would be written as a one with 12 zeros:
Let's say the population of the U.S. is approximately 250 million. If we divide $1,000,000,000,000 (a trillion dollars) by 250,000,000, (million people) we get $4,000. That's $4,000 for each man, woman and child in the United States.As of February 2009, the United States has an estimated resident population of 306 million. People under 20 years of age make up over a quarter of the U.S. population (27.6%), and people age 65 and over made up one-eighth (12.6%) in 2007. The national median age was 36.7 years. http://en.wikipedia.org/wiki/Demographics_of_the_United_States
Wednesday, March 18, 2009
Federal Reserve will buy $1.1 Trillion in Treasuries and other Securities
Breaking News:
Fed will buy up to $1.1 Trillion in treasuries and other securities. Treasuries rally on the announcement!
Latte Republic will report additional information as it becomes available.
Fed will buy up to $1.1 Trillion in treasuries and other securities. Treasuries rally on the announcement!
Latte Republic will report additional information as it becomes available.
Saturday, March 7, 2009
Small Business Owners to Obama - Send Help Now!
"My husband and I are in the exact same situation after 23 years in business. Our employees have had the ability to raise their families and prosper. And now collect unemployment. We have not collected a salary in 2 years, exhausting our savings. We are totally behind on our mortgage, can't pay our bills, soon we will not have money for food. Help" Comment received by Latte Republic on post titled, "The Future looks Bleak for Small Business Owners
After multiple billion dollar bailouts, will Washington do anything to assist recession-ravaged small business owners?
CNN's Stacy Cowley writes, "With bank lending almost frozen and consumer spending down sharply, entrepreneurs foresee a Main Street wipeout if Washington doesn't take action soon to shore up the nation's small businesses."
What are business owners saying? "It's killing us right now. We can't expand, we can't buy inventory; we've had to do everything on credit cards because the banks won't even look at us," said Amy Rhodes, owner of A-2-Z Scuba in Puyallup, Washington. "Every single dime of our $40,000 in profit last year we sunk right back into the business. Now, sales are down, and we're making ends meet out of our own money - which makes it more difficult to pay our mortgage."
Amy Rhodes is not alone. Deborah McQueen of Livermore California told Cowley that "Obama has a great opportunity." Many small business owners like McQueen believe that small businesses can help stabilize the economy if only they had access to low-interest business loans.
Shirley Tan, owner of American Bridal in Burlingame, CA said she feels like she's "watching a domino chain collapsing." Tan cut staff when consumer spending slowed and she has some savings to help sustain the business through a short down period, but she's worried that she may also run out of options.
Many small business owners are shell-shocked that Congress is providing massive bailouts for major Corporations that created the financial crisis while ignoring small businesses that are struggling to survive the recession.
Candidate Obama suggested making direct loans available through the SBA's Disaster Loan Program, which traditionally assists natural disaster victims.
No doubt about it - this is a "man-made" disaster of mammoth proportions. And the very banks that helped create toxic assets are refusing to loan money to the business community.
During the campaign, Obama proposed a small business rescue plan to address entrepreneurs need for working capital. He told supporters, "If we don't act, we'll be looking at scaled-back operations, shuttered shops and laid off workers." And that is exactly what is happening along main street in 100,000's of thousands of cities across America.
Last summer, a Federal Reserve survey revealed that 75% of SBA lenders had tightened their lending standards for small business loans. (minimum 680 credit score among other red tape). In February, an American Express poll revealed that 18% of small businesses could be out of business in six months - twice the August prediction.
The existing FICO credit scoring system is not kind to business owners. Business owners have more credit inquiries and higher credit card balances, due to the fact they can not access traditional business loan products.
In addition, many businesses also have what's called an "accounts receivable." During a recession, many customers fall behind on payments, preventing business owners from making payments on time.
It is estimated that 50% or more Credit Reports have errors serious enough to prevent a borrower from obtaining credit. Now, mix in a couple of late payments, due to a cash shortfall and you have a business that is no longer eligible for a SBA loan.
What can Obama do? Persuade banks to start lending or start cutting small business loan checks directly from the government to help small businesses weather the recession. What happens if banks refuse to make small business loans? Millions of formerly successful small business owners will fail.
Maintaining strong investment in the business community will not only put Americans back to work, but it will assist congress in its efforts to stabilize the economy and rebuild America's faith in the financial industry.
Meanwhile, a number of states, including Washington, are taking advantage of a federal program that extends unemployment benefits for former employees who want to start a business of their own. That's great - as long as existing businesses are not ignored.
Help, I'm already on the ropes:
For small business owners (and former employees) who are already on the ropes: (and millions are) here is a short list of local (Washington) community services that may be able to provide assistance.
Unfortunately, self-employed individuals are not eligible for unemployment benefits or other re-training programs provided by the state or federal government, even though small businesses pay employment security taxes on behalf of their employees. (And, Washington has the best-funded program in the nation).
To date, government has not considered implementing a system to preserve or protect small business owners during severe economic downturns.
Government taxes businesses when the economy is healthy, but it turns its back on those businesses during economic downturns.
If you are self-employed and need assistance with paying utility bills, call the Opportunity Council. There are federal and private emergency energy assistance programs for low income individuals and families across the nation. Please note that they will not be able to schedule an appointment for you until your power or gas is shut off. Unfortunately, they are swamped with requests for assistance.
Self-employed individuals and families who can no longer pay for food should apply for food stamps online at DSHS. If that fails, call or google 211 to locate additional community resources.
If nothing else, you are sending a message to the state and federal government that a large segment of the population is going without community services - not only are they falling through the cracks, they are going under.
211 is a national service (available by phone or Internet) to assist citizens in locating community resources.
If you have fallen behind on your mortgage, please call a HUD approved counseling agency on Monday. You can locate a HUD approved Counselor at the web address below. You may be eligible for a home loan modification.
http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm
Finally, if you find a program that provides assistance to the self employed, please post a comment on this article, so other people can find it too. In times like these, hope is the only thing that many people have left.
CNBC AIG Bailout funds go to banks:http://www.cnbc.com/id/29565683 (for some reason, I can't get this link to work - but the article is worth reading).
Money CNN http://money.cnn.com/2008/11/14/smallbusiness/loans_needed_asap.smb/index.htm?cnn=yes&eref=rss_politics
Original Latte post: http://whatcomforum.blogspot.com/2009/02/state-mailed-out-hundreds-of-thousands.html
After multiple billion dollar bailouts, will Washington do anything to assist recession-ravaged small business owners?
CNN's Stacy Cowley writes, "With bank lending almost frozen and consumer spending down sharply, entrepreneurs foresee a Main Street wipeout if Washington doesn't take action soon to shore up the nation's small businesses."
What are business owners saying? "It's killing us right now. We can't expand, we can't buy inventory; we've had to do everything on credit cards because the banks won't even look at us," said Amy Rhodes, owner of A-2-Z Scuba in Puyallup, Washington. "Every single dime of our $40,000 in profit last year we sunk right back into the business. Now, sales are down, and we're making ends meet out of our own money - which makes it more difficult to pay our mortgage."
Amy Rhodes is not alone. Deborah McQueen of Livermore California told Cowley that "Obama has a great opportunity." Many small business owners like McQueen believe that small businesses can help stabilize the economy if only they had access to low-interest business loans.
Shirley Tan, owner of American Bridal in Burlingame, CA said she feels like she's "watching a domino chain collapsing." Tan cut staff when consumer spending slowed and she has some savings to help sustain the business through a short down period, but she's worried that she may also run out of options.
Many small business owners are shell-shocked that Congress is providing massive bailouts for major Corporations that created the financial crisis while ignoring small businesses that are struggling to survive the recession.
Candidate Obama suggested making direct loans available through the SBA's Disaster Loan Program, which traditionally assists natural disaster victims.
No doubt about it - this is a "man-made" disaster of mammoth proportions. And the very banks that helped create toxic assets are refusing to loan money to the business community.
During the campaign, Obama proposed a small business rescue plan to address entrepreneurs need for working capital. He told supporters, "If we don't act, we'll be looking at scaled-back operations, shuttered shops and laid off workers." And that is exactly what is happening along main street in 100,000's of thousands of cities across America.
Last summer, a Federal Reserve survey revealed that 75% of SBA lenders had tightened their lending standards for small business loans. (minimum 680 credit score among other red tape). In February, an American Express poll revealed that 18% of small businesses could be out of business in six months - twice the August prediction.
The existing FICO credit scoring system is not kind to business owners. Business owners have more credit inquiries and higher credit card balances, due to the fact they can not access traditional business loan products.
In addition, many businesses also have what's called an "accounts receivable." During a recession, many customers fall behind on payments, preventing business owners from making payments on time.
It is estimated that 50% or more Credit Reports have errors serious enough to prevent a borrower from obtaining credit. Now, mix in a couple of late payments, due to a cash shortfall and you have a business that is no longer eligible for a SBA loan.
What can Obama do? Persuade banks to start lending or start cutting small business loan checks directly from the government to help small businesses weather the recession. What happens if banks refuse to make small business loans? Millions of formerly successful small business owners will fail.
Maintaining strong investment in the business community will not only put Americans back to work, but it will assist congress in its efforts to stabilize the economy and rebuild America's faith in the financial industry.
Meanwhile, a number of states, including Washington, are taking advantage of a federal program that extends unemployment benefits for former employees who want to start a business of their own. That's great - as long as existing businesses are not ignored.
Help, I'm already on the ropes:
For small business owners (and former employees) who are already on the ropes: (and millions are) here is a short list of local (Washington) community services that may be able to provide assistance.
Unfortunately, self-employed individuals are not eligible for unemployment benefits or other re-training programs provided by the state or federal government, even though small businesses pay employment security taxes on behalf of their employees. (And, Washington has the best-funded program in the nation).
To date, government has not considered implementing a system to preserve or protect small business owners during severe economic downturns.
Government taxes businesses when the economy is healthy, but it turns its back on those businesses during economic downturns.
If you are self-employed and need assistance with paying utility bills, call the Opportunity Council. There are federal and private emergency energy assistance programs for low income individuals and families across the nation. Please note that they will not be able to schedule an appointment for you until your power or gas is shut off. Unfortunately, they are swamped with requests for assistance.
Self-employed individuals and families who can no longer pay for food should apply for food stamps online at DSHS. If that fails, call or google 211 to locate additional community resources.
If nothing else, you are sending a message to the state and federal government that a large segment of the population is going without community services - not only are they falling through the cracks, they are going under.
211 is a national service (available by phone or Internet) to assist citizens in locating community resources.
If you have fallen behind on your mortgage, please call a HUD approved counseling agency on Monday. You can locate a HUD approved Counselor at the web address below. You may be eligible for a home loan modification.
http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm
Finally, if you find a program that provides assistance to the self employed, please post a comment on this article, so other people can find it too. In times like these, hope is the only thing that many people have left.
CNBC AIG Bailout funds go to banks:http://www.cnbc.com/id/29565683 (for some reason, I can't get this link to work - but the article is worth reading).
Money CNN http://money.cnn.com/2008/11/14/smallbusiness/loans_needed_asap.smb/index.htm?cnn=yes&eref=rss_politics
Original Latte post: http://whatcomforum.blogspot.com/2009/02/state-mailed-out-hundreds-of-thousands.html
Wednesday, March 4, 2009
Summary of "Making Home Affordable" Guidelines
U.S. DEPARTMENT OF THE TREASURY
Washington
March 4, 2009
Making Home Affordable
Summary of Guidelines
Making Home Affordable will offer assistance to as many as 7 to 9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosures on families, communities and the national economy.
The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.
GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.
The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program.
With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford their payments. The detailed guidelines (separate document) provide information on the following:
Eligibility and Verification
Loans originated on or before January 1, 2009.
First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
Modifications can start from now until December 31, 2012; loans can be modified only once under the program.
Loan Modification Terms and Procedures
Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.
Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive
– meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.
• Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions.
• Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
• The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
• The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
• Servicers must enter into the program agreements with Treasury's financial agent on or before December 31, 2009.
Payments to Servicers, Lenders, and Responsible Borrowers
The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.
Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus "pay for success" fees on still-performing loans of $1,000 per year.
Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
The program will include incentives for extinguishing second liens on loans modified under this program.
No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.
Similar incentives will be paid for Hope for Homeowner refinances.
Transparency and Accountability
Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.
Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.
Freddie Mac will audit compliance.
Full Report: http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf
Press Release: http://www.ustreas.gov/press/releases/reports/guidelines_summary.pdf
Bloomburg Article: http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=aPdRXuqc58RU
Wall Street Journal: http://blogs.wsj.com/economics/2009/03/04/treasury-loan-modification-guidelines/
House agrees to narrow legislation that provides loan modifications by Bankruptcy Judges
This morning, the Treasury Department released detailed guidelines to the lending industry regarding the implementation of "the Making Housing Affordable" initiative to help home owners experiencing financial hardship to remain in their homes.
Eligible borrowers will be asked to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify for the $75 billion loan modification program, which runs through 2012. The program only applies to loans taken out before January 1, 2009. Loans that were taken out after January 2009 are not eligible under this program.
Fannie Mae will be accepting applications for modification of Fannie Mae owned loans through June of 2010.
For borrowers who do not have a mortgage owned by Fannie Mae, the AP announced that House Democrats voted Tuesday to "narrow legislation that gives bankruptcy judges the power to force lenders to lower the interest rate or principal of mortgages for troubled homeowners."
The AP also said, "Under the terms of the agreement, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to prove that they tried to modify their mortgages."
MSNBC article: http://www.msnbc.msn.com/id/29508039
Eligible borrowers will be asked to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify for the $75 billion loan modification program, which runs through 2012. The program only applies to loans taken out before January 1, 2009. Loans that were taken out after January 2009 are not eligible under this program.
Fannie Mae will be accepting applications for modification of Fannie Mae owned loans through June of 2010.
For borrowers who do not have a mortgage owned by Fannie Mae, the AP announced that House Democrats voted Tuesday to "narrow legislation that gives bankruptcy judges the power to force lenders to lower the interest rate or principal of mortgages for troubled homeowners."
The AP also said, "Under the terms of the agreement, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to prove that they tried to modify their mortgages."
I urge anyone using the mortgage modification process to document every contact with their lender. Preferably in writing. Insist on written responses. Do not negotiate a modification on the telephone.
Telephone conversations are difficult to document unless you ask the lender permission to record the call in advance of the conversation. Once again, it is important to document every communication to ensure that you have adequate documentation in case you are forced to seek protection under federal bankruptcy laws.
Second, don't sign a modification agreement or any other legal documents until you have had an opportunity to review the agreement with a competent attorney. There are legal aid attorneys who can assist individuals and families who can not afford to pay an attorney.
The U.S. Housing and Urban Development Agency has a list of approved counselors home owners can work with. Do not work with anyone who is not approved with HUD or by the Washington State Attorney Generals Office.
Please note that there are professional modification services available for individuals who can afford to pay for the service. You can contact the Attorney Generals Office or a reputable, fully licensed mortgage broker or loan originator for additional information. I will post more on this topic later today or tomorrow.
I will also review the Treasury Department's guidelines and provide an analysis of requirements as soon as the guidelines are available.
Compromise legislation on the bankruptcy bill is expected to come to a vote on Thursday.MSNBC article: http://www.msnbc.msn.com/id/29508039
Sunday, March 1, 2009
Dear AIG, it's so over
AIG will receive up to an additional 30 billion, under the government's 4th revised plan for bailout since last September.
Should we continue to bailout AIG? Or, should we ask the federal government to slowly phase out AIG and put an end to it's misery?
AP News: "An AIG spokesman was not available for comment. The Federal Reserve Bank of New York, which is handling the government loan, did not return requests for comment Sunday afternoon. Treasury Department spokesman Isaac Baker declined to comment.
The company’s board is scheduled to meet Sunday to vote on the revised bailout.
Major credit rating agencies have already signed off on the deal. Without the support of the credit rating agencies, AIG would have faced crippling cuts to its ratings.
AIG has been forced to seek more help because of a combination of factors including the recession and its falling stock price, now well under $1. Perhaps its biggest problem has been that asset sales that were supposed to help the company pay back government loans aren’t happening, in part because the credit crisis that initially landed AIG in trouble last summer is also preventing would-be buyers from getting financing to complete such deals."
The entire post can be read here: http://www.msnbc.msn.com/id/29455792
Should we continue to bailout AIG? Or, should we ask the federal government to slowly phase out AIG and put an end to it's misery?
AP News: "An AIG spokesman was not available for comment. The Federal Reserve Bank of New York, which is handling the government loan, did not return requests for comment Sunday afternoon. Treasury Department spokesman Isaac Baker declined to comment.
The company’s board is scheduled to meet Sunday to vote on the revised bailout.
Major credit rating agencies have already signed off on the deal. Without the support of the credit rating agencies, AIG would have faced crippling cuts to its ratings.
AIG has been forced to seek more help because of a combination of factors including the recession and its falling stock price, now well under $1. Perhaps its biggest problem has been that asset sales that were supposed to help the company pay back government loans aren’t happening, in part because the credit crisis that initially landed AIG in trouble last summer is also preventing would-be buyers from getting financing to complete such deals."
The entire post can be read here: http://www.msnbc.msn.com/id/29455792
Saturday, February 28, 2009
Homeowner Affordability and Stability Plan
Executive Summary
Read the Homeowner Affordability and Stability Plan Fact Sheet http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/FactSheet.pdf
Read Support Under the Homeowner Affordability and Stability Plan: Three Cases http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/HousingExampleSheet.pdf
The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.
Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.
1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac
The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner
Affordability and Stability Plan are:
1.Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:
Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today's low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
"Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive "pay for success" fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC's pioneering work. The Guidelines will be used for the Administration's new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.
Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
Read the Homeowner Affordability and Stability Plan Fact Sheet http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/FactSheet.pdf
Read Support Under the Homeowner Affordability and Stability Plan: Three Cases http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/HousingExampleSheet.pdf
The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.
Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.
1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac
The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner
Affordability and Stability Plan are:
1.Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:
Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today's low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.
2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
"Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive "pay for success" fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC's pioneering work. The Guidelines will be used for the Administration's new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.
Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers
3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
U.S. Treasury: http://www.treas.gov/initiatives/eesa/homeowner-affordability-plan/FactSheet.pdf
Sunday, February 22, 2009
The Future looks Bleak for many Small Business Owners
Will the current recipients of Self Employment Assistance programs be the Future Employers of today's struggling Small Business Owners?
Why? The state of Washington would be eligible for an additional $43 million in federal funding if the state's food stamp recipients receive just $1 dollar for energy bill assistance.
The cost of mailing the checks out is $250,000 and could increase food stamp allocations by $30 dollars per month for many recipients. Granted, this is good news for the thousands of families in our state who are struggling to keep their heads above water.
But, the announcement raises a number of questions: for instance, how are the state's neediest residents paying gas, electric, water and sewer bills?
And, what assistance, if any, are self-employed individuals and families receiving due to the economic impacts of the recession?
Who are the self-employed? 1099 employees and business owners.
When I conducted an Internet search for "self-employment assistance programs," it appears that those individuals who are already self-employed and struggling because of the economic down turn, have very few resources to assist them. For a detailed look at the severity of the recession, check out Paul Krugman's article, Who’ll Stop the Pain? posted on the New York Times.
No doubt about it, rising unemployment spared no state last month, and 2009 is shaping up as another miserable year for workers from coast to coast. But traditional unemployment statistics, as gloomy as they may be, do not take count the self-employed.
Many small business owners have exhausted their savings and lay awake at night wondering how they are going to put food on the table, pay bills, or make the mortgage payment. Today, sub contractors are calling contractors, begging to be paid for work that was completed last year, or even the year before.
That's the way it works. The big guys get into financial trouble and the little guys don't get paid. Not getting paid means you can't pay your bills on time. Not paying your bills on time results in a low credit score, which prevents small business owners from borrowing money to recover from the economic down turn.
Meanwhile, former employees have access to unemployment benefits, retraining services, classes and other forms of assistance not available to former employers.
Many of the businesses that are struggling to survive were successful two short years ago. Many of them employed anywhere from two to ten employees. They are, (or were), what politicians on the campaign trail call, "The backbone of America," the entreprenuers who provide the bulk of the jobs for American workers.
They are the men and women who are ineligible for most of the social assistance programs other Americans take for granted -- including unemployment benefits.
However, if someone is receiving unemployment benefits, AFDC or TANF assistance, they may be eligible for a range of state and federal financial assistance to help them get started in their own business.
In fact, the government will extend unemployment benefits while displaced workers start a business. If a worker needs training to update or develop skills, government will educate them. In many states, there are funds available to assist with a business start up. Do I resent the fact that government is helping people? No.
But I do question the fairness of Self Employment Assistance programs that exclude individuals who have been self-employed and have already demonstrated that they have a solid track record of providing jobs for the community.
Is it fair for government to provide benefits for new start up businesses that will be competing with established businesses that do not have access to similar programs?
Why would we want to "throw away" experienced business owners in order to train new ones? More importantly, how can established business owners compete with state-subsidized business owners? Especially when the state-subsidized business owners can underbid established businesses that do not receive any kind of aid?
Let's take a quick look at current federal and state programs that are available to displaced workers but not the self-employed.
The Federal Government
From the United States Department of Labor website: http://ows.doleta.gov/unemploy/self.asp
Self-Employment Assistance Purpose
Self-Employment Assistance offers dislocated workers the opportunity for early re-employment. The program is designed to encourage and enable unemployed workers to create their own jobs by starting their own small businesses.
Under these programs, States can pay a self-employed allowance, instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing businesses and becoming self-employed. Participants receive weekly allowances while they are getting their businesses off the ground.
This is a voluntary program for States and, to date, Delaware, Maine, Maryland, New Jersey, New York, Oregon and Pennsylvania have Self-Employment Assistance programs. The State Workforce Agency web sites for these states can be accessed at: http://www.workforcesecurity.doleta.gov/map.asp.
Eligibility
Generally, in order to receive these benefits, an individual must first be eligible to receive regular unemployment insurance under State law. Individuals who have been permanently laid off from their previous jobs and are identified (through a State's profiling system) as likely to exhaust regular unemployment benefits are eligible to participate in the program.
Individuals may be eligible even if they are engaged full-time in self-employment activities - including entrepreneurial training, business counseling, and technical assistance.
Benefits
Self-employment allowances are the same weekly amounts as the worker's regular unemployment insurance benefits. Participants work full-time on starting their business instead of looking for wage and salary jobs.
Filing A Claim
You should contact the State Unemployment Insurance agency as soon as possible after becoming unemployed. At the time you file your claim you should ask whether a Self-Employment Assistance program operates in your State.
Click here for more Unemployment Fact Sheets
From Washington State:
RCW 50.20.250 (highlights are mine)
Finding — Self-employment assistance program — Rules. (Expires July 1, 2012.)
(1) The legislature finds that the establishment of a self-employment assistance program would assist unemployed individuals and create new businesses and job opportunities in Washington state. The department shall inform individuals identified as likely to exhaust regular unemployment benefits of the opportunity to enroll in commissioner-approved self-employment assistance programs.
(2) An unemployed individual is eligible to participate in a self-employment assistance program if it has been determined that he or she:
(a) Is otherwise eligible for regular benefits as defined in RCW 50.22.010;
(b) Has been identified as likely to exhaust regular unemployment benefits under a profiling system established by the commissioner as defined in P.L. 103-152; and (c) Is enrolled in a self-employment assistance program that is approved by the commissioner, and includes entrepreneurial training, business counseling, technical assistance, and requirements to engage in activities relating to the establishment of a business and becoming self-employed.
(3) Individuals participating in a self-employment assistance program approved by the commissioner are eligible to receive their regular unemployment benefits.
(a) The requirements of RCW 50.20.010 and 50.20.080 relating to availability for work, active search for work, and refusal to accept suitable work are not applicable to an individual in the self-employment assistance program for the first fifty-two weeks of the individual's participation in the program. However, enrollment in a self-employment assistance program does not entitle the enrollee to any benefit payments he or she would not be entitled to had he or she not enrolled in the program.
(b) An individual who meets the requirements of this section is considered to be "unemployed" under RCW 50.04.310 and 50.20.010.
(4) An individual who fails to participate in his or her approved self-employment assistance program as prescribed by the commissioner is disqualified from continuation in the program.
(5) An individual completing the program may not directly compete with his or her separating employer for a specific time period and in a specific geographic area. The time period may not, in any case, exceed one year. Both the time period and the geographic area must be reasonable, considering the following factors:
(a) Whether restraining the individual from performing services is necessary for the protection of the employer or the employer's goodwill;
(b) Whether the agreement harms the individual more than is reasonably necessary to secure the employer's business or goodwill; and
(c) Whether the loss of the employee's services and skills injures the public to a degree warranting nonenforcement of the agreement.
(6) The commissioner shall take all steps necessary in carrying out this section to assure collaborative involvement of interested parties in program development, and to ensure that the self-employment assistance programs meet all federal criteria for withdrawal from the unemployment fund. The commissioner may approve, as self-employment assistance programs, existing self-employment training programs available through community colleges, workforce investment boards, or other organizations and is not obligated by this section to expend any departmental funds for the operation of self-employment assistance programs, unless specific funding is provided to the department for that purpose through federal or state appropriations.
(7) The commissioner may adopt rules as necessary to implement this section.
Which raises a final question: will the recipients of the services above be the future employers of today's struggling small business owners?
If so, Ouch!
Link to RCWs: http://apps.leg.wa.gov/RCW/default.aspx?cite=50.20.250
cfed.org report http://www.cfed.org/publications/effectivePractice/TANF-Funded%20Microenterprise.pdf
First, I want to acknowledge publicly that I believe government assistance programs provide an essential safety net for struggling families across the nation. Unfortunately, most government programs exclude the self-employed who, (just in case no one noticed), are also struggling to keep their heads above water thanks to the economic down turn.
Political Science professors and civics teachers across America will tell you that the practice of politics is about the allocation of resources to people and communities. But sometimes, the way government chooses to allocate resources can cause harm to individuals, families and businesses.
Drew Millelsen, of KING 5 News in Seattle recently reported that the state of Washington is sending out hundreds of thousands of $1 checks to the state's neediest residents in order to increase state eligibility for federal aid.Why? The state of Washington would be eligible for an additional $43 million in federal funding if the state's food stamp recipients receive just $1 dollar for energy bill assistance.
The cost of mailing the checks out is $250,000 and could increase food stamp allocations by $30 dollars per month for many recipients. Granted, this is good news for the thousands of families in our state who are struggling to keep their heads above water.
But, the announcement raises a number of questions: for instance, how are the state's neediest residents paying gas, electric, water and sewer bills?
And, what assistance, if any, are self-employed individuals and families receiving due to the economic impacts of the recession?
Who are the self-employed? 1099 employees and business owners.
When I conducted an Internet search for "self-employment assistance programs," it appears that those individuals who are already self-employed and struggling because of the economic down turn, have very few resources to assist them. For a detailed look at the severity of the recession, check out Paul Krugman's article, Who’ll Stop the Pain? posted on the New York Times.
No doubt about it, rising unemployment spared no state last month, and 2009 is shaping up as another miserable year for workers from coast to coast. But traditional unemployment statistics, as gloomy as they may be, do not take count the self-employed.
Many small business owners have exhausted their savings and lay awake at night wondering how they are going to put food on the table, pay bills, or make the mortgage payment. Today, sub contractors are calling contractors, begging to be paid for work that was completed last year, or even the year before.
That's the way it works. The big guys get into financial trouble and the little guys don't get paid. Not getting paid means you can't pay your bills on time. Not paying your bills on time results in a low credit score, which prevents small business owners from borrowing money to recover from the economic down turn.
Meanwhile, former employees have access to unemployment benefits, retraining services, classes and other forms of assistance not available to former employers.
Many of the businesses that are struggling to survive were successful two short years ago. Many of them employed anywhere from two to ten employees. They are, (or were), what politicians on the campaign trail call, "The backbone of America," the entreprenuers who provide the bulk of the jobs for American workers.
They are the men and women who are ineligible for most of the social assistance programs other Americans take for granted -- including unemployment benefits.
However, if someone is receiving unemployment benefits, AFDC or TANF assistance, they may be eligible for a range of state and federal financial assistance to help them get started in their own business.
In fact, the government will extend unemployment benefits while displaced workers start a business. If a worker needs training to update or develop skills, government will educate them. In many states, there are funds available to assist with a business start up. Do I resent the fact that government is helping people? No.
But I do question the fairness of Self Employment Assistance programs that exclude individuals who have been self-employed and have already demonstrated that they have a solid track record of providing jobs for the community.
Is it fair for government to provide benefits for new start up businesses that will be competing with established businesses that do not have access to similar programs?
Why would we want to "throw away" experienced business owners in order to train new ones? More importantly, how can established business owners compete with state-subsidized business owners? Especially when the state-subsidized business owners can underbid established businesses that do not receive any kind of aid?
Let's take a quick look at current federal and state programs that are available to displaced workers but not the self-employed.
The Federal Government
From the United States Department of Labor website: http://ows.doleta.gov/unemploy/self.asp
Self-Employment Assistance Purpose
Self-Employment Assistance offers dislocated workers the opportunity for early re-employment. The program is designed to encourage and enable unemployed workers to create their own jobs by starting their own small businesses.
Under these programs, States can pay a self-employed allowance, instead of regular unemployment insurance benefits, to help unemployed workers while they are establishing businesses and becoming self-employed. Participants receive weekly allowances while they are getting their businesses off the ground.
This is a voluntary program for States and, to date, Delaware, Maine, Maryland, New Jersey, New York, Oregon and Pennsylvania have Self-Employment Assistance programs. The State Workforce Agency web sites for these states can be accessed at: http://www.workforcesecurity.doleta.gov/map.asp.
Eligibility
Generally, in order to receive these benefits, an individual must first be eligible to receive regular unemployment insurance under State law. Individuals who have been permanently laid off from their previous jobs and are identified (through a State's profiling system) as likely to exhaust regular unemployment benefits are eligible to participate in the program.
Individuals may be eligible even if they are engaged full-time in self-employment activities - including entrepreneurial training, business counseling, and technical assistance.
Benefits
Self-employment allowances are the same weekly amounts as the worker's regular unemployment insurance benefits. Participants work full-time on starting their business instead of looking for wage and salary jobs.
Filing A Claim
You should contact the State Unemployment Insurance agency as soon as possible after becoming unemployed. At the time you file your claim you should ask whether a Self-Employment Assistance program operates in your State.
Click here for more Unemployment Fact Sheets
From Washington State:
RCW 50.20.250 (highlights are mine)
Finding — Self-employment assistance program — Rules. (Expires July 1, 2012.)
(1) The legislature finds that the establishment of a self-employment assistance program would assist unemployed individuals and create new businesses and job opportunities in Washington state. The department shall inform individuals identified as likely to exhaust regular unemployment benefits of the opportunity to enroll in commissioner-approved self-employment assistance programs.
(2) An unemployed individual is eligible to participate in a self-employment assistance program if it has been determined that he or she:
(a) Is otherwise eligible for regular benefits as defined in RCW 50.22.010;
(b) Has been identified as likely to exhaust regular unemployment benefits under a profiling system established by the commissioner as defined in P.L. 103-152; and (c) Is enrolled in a self-employment assistance program that is approved by the commissioner, and includes entrepreneurial training, business counseling, technical assistance, and requirements to engage in activities relating to the establishment of a business and becoming self-employed.
(3) Individuals participating in a self-employment assistance program approved by the commissioner are eligible to receive their regular unemployment benefits.
(a) The requirements of RCW 50.20.010 and 50.20.080 relating to availability for work, active search for work, and refusal to accept suitable work are not applicable to an individual in the self-employment assistance program for the first fifty-two weeks of the individual's participation in the program. However, enrollment in a self-employment assistance program does not entitle the enrollee to any benefit payments he or she would not be entitled to had he or she not enrolled in the program.
(b) An individual who meets the requirements of this section is considered to be "unemployed" under RCW 50.04.310 and 50.20.010.
(4) An individual who fails to participate in his or her approved self-employment assistance program as prescribed by the commissioner is disqualified from continuation in the program.
(5) An individual completing the program may not directly compete with his or her separating employer for a specific time period and in a specific geographic area. The time period may not, in any case, exceed one year. Both the time period and the geographic area must be reasonable, considering the following factors:
(a) Whether restraining the individual from performing services is necessary for the protection of the employer or the employer's goodwill;
(b) Whether the agreement harms the individual more than is reasonably necessary to secure the employer's business or goodwill; and
(c) Whether the loss of the employee's services and skills injures the public to a degree warranting nonenforcement of the agreement.
(6) The commissioner shall take all steps necessary in carrying out this section to assure collaborative involvement of interested parties in program development, and to ensure that the self-employment assistance programs meet all federal criteria for withdrawal from the unemployment fund. The commissioner may approve, as self-employment assistance programs, existing self-employment training programs available through community colleges, workforce investment boards, or other organizations and is not obligated by this section to expend any departmental funds for the operation of self-employment assistance programs, unless specific funding is provided to the department for that purpose through federal or state appropriations.
(7) The commissioner may adopt rules as necessary to implement this section.
Which raises a final question: will the recipients of the services above be the future employers of today's struggling small business owners?
If so, Ouch!
Link to RCWs: http://apps.leg.wa.gov/RCW/default.aspx?cite=50.20.250
cfed.org report http://www.cfed.org/publications/effectivePractice/TANF-Funded%20Microenterprise.pdf
Friday, February 20, 2009
The Next Step: Banking, Investment and Credit Reform
How do we secure America's Financial Future?
Apparently, the traditional approach to managing risk in lending has failed. It appears that one of two things has happened. Either a comprehensive background assessment of a borrower's qualifications did not occur during underwriting at certain institutions (and those banks looked the other way in order to secure short term profits, bonuses and commissions); or, it is too costly for the banks to manage risk.
Well, many banks are managing risk effectively; so, apparently the other banks didn't care if borrowers were qualified or not. After all, the bad loans could be mixed in with good loans before they were sold to investors.
No doubt about it, greed contributed significantly to the current financial crisis.
Despite public outrage at being forced at "gun point" to bailout financial institutions, there is no justice to be found. The financial bailout isn't about justice -- it is about survival.
Without government help, there was a good chance our banking system would collapse, and that would result in gut wrenching pain for all of us.
Fact: on September 18, 2008 we had an electronic bank run of $550 billion in just two hours. Congressman Paul Kanjorske told media that the U.S. Treasury Department estimated that if they had not temporarily shut down the system and raised deposit guarantees, $5.5 trillion would have likely been withdrawn from the U.S. money market system by 2 p.m., effectively taking down our financial system.
Yes - apparently, that' s how close we came to a total collapse of the U.S. Financial System.
In the past, NYU banking professor Nouriel Roubini estimated that banking losses could peak at $3.6 trillion, which means the U.S. Banking System is Insolvent. http://www.reuters.com/article/marketsNews/idUSN2033376120090220
What happens when a banking system collapses? In 2007, Iceland was tagged by the United Nations as the most developed country in the world. But last October, the nation's banking system collapsed. Consequently, Iceland's currency lost about half of its value. Inflation is at 18.6% and rising. The Central Bank (Iceland nationalized it's banks when they collapsed) is charging 18% interest and unemployment has quadrupled. And all this happened before interest rates skyrocketed.
The worst thing about Government intervention is that it has the ability to distort the market -- and, we are just beginning to see the ripples of adverse economic effects. For example, If the banks earn interest on deposits at the Fed, will they be motivated to lend money to other banks? Where will businesses and citizens obtain credit, if a large portion of America's money is out of circulation?
I understand that a lot of folks, including myself, are outraged by the bank executive bonuses, corporate jets, brand new mega yachts, lavish parties or the consequences of moral hazard. But the most toxic part of the bailout is not the financial industry's in-your-face arrogance, its the distortion of the market.
Now that we know a few investment firms can undermine the entire financial system, we must take steps to protect taxpayers and consumers from this kind of behavior in the future.
There are no influencial lobbyists who will volunteer to do this on our behalf. (But there are plenty of financial industry lobbyists who are taking advantage of bailout money to lobby against us).
If we, (the American people) want to avoid another massive bank bailout in the future, we (the taxpayers) must insist Congress implement the following reforms:
1. First and foremost, enact reforms that prevent another bailout from ever taking place again. (This isn't the first bailout, but it better be the last).
2. Hold banks accountable - require banks and other institutions to account for how they are spending taxpayer funds.
3. Enact stronger consumer protections and new financial regulations to protect consumers from predatory lending practices.
4. Create a Consumer Credit Safety Commission with the authority and to rank and regulate the safety of banking products.
5. Place appropriate restrictions on how the remainder of the bailout funds are spent. For example, bailout funds may not be used to pay executive bonuses, commissions, corporate retreats, or lobbying.
6. When rescuing firms like AIG, require them to stop writing new policies and slowly phase them out. Corporations should not be rewarded for poor business practices. Nor should their competition be placed at a disadvantage because a bankrupt firm was rescued by the taxpayers.
7. Revamp the existing FICO Credit Scoring System and the Fair Credit Act. Too many market decisions are made based on an individuals FICO score. Credit report errors are increasingly difficult to fix and unscrupulous collection firms routinely sell old debts to new companies, (including debts discharged in bankruptcy) in order to make profits. It is estimated that over 50% of America's credit reports contain errors serious enough to prevent a borrower from purchasing a home or car at a competitive interest rate.
Today, many individuals have reduced FICO scores due to the recession. Credit scores are routinely used to determine how much we will pay for car insurance and home owner's insurance. (Apparently, we become crazed the second our score drops below a certain number).
To add insult to injury, many employers pull credit on job applicants. In other words, people who desperately want and need a job may be discriminated against because they have fallen on hard times through no fault of their own. Now there's a catch 22 if I ever saw one!
Finally, a number of states (including Washington) will cancel a person's professional license if they are forced to file for bankruptcy. In hard economic times like this, I can't think of an act that is more punitive than taking away a person's ability to support themselves.
Individuals are not responsible for creating economic recessions and governments should not cancel a person's professional license because they have suffered adverse financial impacts. Especially if the bankruptcy is caused by a medical emergency. 47 million Americans do not have health insurance. In other words, we can look forward to a lot of bankruptcies -- so, rather than punish people for events they have no control of, let's put America back to work.
8. Implement the recommendations of the Special Report on Regulatory reform of the bi-partisan Congressional Oversight Panel chaired by Professor Elizabeth Warren. The full report can be found at http://cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf.
Apparently, the traditional approach to managing risk in lending has failed. It appears that one of two things has happened. Either a comprehensive background assessment of a borrower's qualifications did not occur during underwriting at certain institutions (and those banks looked the other way in order to secure short term profits, bonuses and commissions); or, it is too costly for the banks to manage risk.
Well, many banks are managing risk effectively; so, apparently the other banks didn't care if borrowers were qualified or not. After all, the bad loans could be mixed in with good loans before they were sold to investors.
No doubt about it, greed contributed significantly to the current financial crisis.
Despite public outrage at being forced at "gun point" to bailout financial institutions, there is no justice to be found. The financial bailout isn't about justice -- it is about survival.
Without government help, there was a good chance our banking system would collapse, and that would result in gut wrenching pain for all of us.
Fact: on September 18, 2008 we had an electronic bank run of $550 billion in just two hours. Congressman Paul Kanjorske told media that the U.S. Treasury Department estimated that if they had not temporarily shut down the system and raised deposit guarantees, $5.5 trillion would have likely been withdrawn from the U.S. money market system by 2 p.m., effectively taking down our financial system.
Yes - apparently, that' s how close we came to a total collapse of the U.S. Financial System.
In the past, NYU banking professor Nouriel Roubini estimated that banking losses could peak at $3.6 trillion, which means the U.S. Banking System is Insolvent. http://www.reuters.com/article/marketsNews/idUSN2033376120090220
What happens when a banking system collapses? In 2007, Iceland was tagged by the United Nations as the most developed country in the world. But last October, the nation's banking system collapsed. Consequently, Iceland's currency lost about half of its value. Inflation is at 18.6% and rising. The Central Bank (Iceland nationalized it's banks when they collapsed) is charging 18% interest and unemployment has quadrupled. And all this happened before interest rates skyrocketed.
The worst thing about Government intervention is that it has the ability to distort the market -- and, we are just beginning to see the ripples of adverse economic effects. For example, If the banks earn interest on deposits at the Fed, will they be motivated to lend money to other banks? Where will businesses and citizens obtain credit, if a large portion of America's money is out of circulation?
I understand that a lot of folks, including myself, are outraged by the bank executive bonuses, corporate jets, brand new mega yachts, lavish parties or the consequences of moral hazard. But the most toxic part of the bailout is not the financial industry's in-your-face arrogance, its the distortion of the market.
Now that we know a few investment firms can undermine the entire financial system, we must take steps to protect taxpayers and consumers from this kind of behavior in the future.
There are no influencial lobbyists who will volunteer to do this on our behalf. (But there are plenty of financial industry lobbyists who are taking advantage of bailout money to lobby against us).
If we, (the American people) want to avoid another massive bank bailout in the future, we (the taxpayers) must insist Congress implement the following reforms:
1. First and foremost, enact reforms that prevent another bailout from ever taking place again. (This isn't the first bailout, but it better be the last).
2. Hold banks accountable - require banks and other institutions to account for how they are spending taxpayer funds.
3. Enact stronger consumer protections and new financial regulations to protect consumers from predatory lending practices.
4. Create a Consumer Credit Safety Commission with the authority and to rank and regulate the safety of banking products.
5. Place appropriate restrictions on how the remainder of the bailout funds are spent. For example, bailout funds may not be used to pay executive bonuses, commissions, corporate retreats, or lobbying.
6. When rescuing firms like AIG, require them to stop writing new policies and slowly phase them out. Corporations should not be rewarded for poor business practices. Nor should their competition be placed at a disadvantage because a bankrupt firm was rescued by the taxpayers.
7. Revamp the existing FICO Credit Scoring System and the Fair Credit Act. Too many market decisions are made based on an individuals FICO score. Credit report errors are increasingly difficult to fix and unscrupulous collection firms routinely sell old debts to new companies, (including debts discharged in bankruptcy) in order to make profits. It is estimated that over 50% of America's credit reports contain errors serious enough to prevent a borrower from purchasing a home or car at a competitive interest rate.
Today, many individuals have reduced FICO scores due to the recession. Credit scores are routinely used to determine how much we will pay for car insurance and home owner's insurance. (Apparently, we become crazed the second our score drops below a certain number).
To add insult to injury, many employers pull credit on job applicants. In other words, people who desperately want and need a job may be discriminated against because they have fallen on hard times through no fault of their own. Now there's a catch 22 if I ever saw one!
Finally, a number of states (including Washington) will cancel a person's professional license if they are forced to file for bankruptcy. In hard economic times like this, I can't think of an act that is more punitive than taking away a person's ability to support themselves.
Individuals are not responsible for creating economic recessions and governments should not cancel a person's professional license because they have suffered adverse financial impacts. Especially if the bankruptcy is caused by a medical emergency. 47 million Americans do not have health insurance. In other words, we can look forward to a lot of bankruptcies -- so, rather than punish people for events they have no control of, let's put America back to work.
8. Implement the recommendations of the Special Report on Regulatory reform of the bi-partisan Congressional Oversight Panel chaired by Professor Elizabeth Warren. The full report can be found at http://cop.senate.gov/documents/cop-012909-report-regulatoryreform.pdf.
Where did it all begin? Well, there is no simple answer to that question, but, just for grins, check out the article below.
U.S. law-makers reach compromise on banking bill - Oct. 22, 1999
The White House and congressional negotiators agreed early Friday on compromises that clear the way for passage of major legislation overhauling Depression-era banking and ...
money.cnn.com/1999/10/22/banking/bankreform
· Cached page
Allen Stanford served civil papers in $8 billion fraud case
Last Tuesday, Allen Stanford, of Stanford Bank was charged with fraud by the SEC. Stanford was served papers yesterday in Virginia.
MSNBC is reporting that the "FBI served civil papers" to the banker, who is accused of trying to bilk 50,000 clients out of $8 billion.
ABC is reporting that U.S. Marshals seized Stanford's assets, and clients have been flocking to Antigua to try and withdraw funds.
ABC is also reporting that Stanford is also under investigation in connection with an alleged drug money-laundering scheme for Mexico's Gulf Cartel.
Stanford's fleet of six private jets were recalled to the corporate hangar at Sugarland Airport outside Houston, including the Bombardier 500 luxury jet that was used exclusively by Stanford.
Stanford's 120 foot yacht, the Sea Eagle Bikini, docked at a marina in St. Croix is also likely to be seized, and SEC attorneys contacted marina owners in St. Croix to determine the precise location of the yacht.
Sean Hannity endorses Stanford's company.
Stanford's victims speak out.
MSNBC is reporting that the "FBI served civil papers" to the banker, who is accused of trying to bilk 50,000 clients out of $8 billion.
ABC is reporting that U.S. Marshals seized Stanford's assets, and clients have been flocking to Antigua to try and withdraw funds.
ABC is also reporting that Stanford is also under investigation in connection with an alleged drug money-laundering scheme for Mexico's Gulf Cartel.
Stanford's fleet of six private jets were recalled to the corporate hangar at Sugarland Airport outside Houston, including the Bombardier 500 luxury jet that was used exclusively by Stanford.
Stanford's 120 foot yacht, the Sea Eagle Bikini, docked at a marina in St. Croix is also likely to be seized, and SEC attorneys contacted marina owners in St. Croix to determine the precise location of the yacht.
Sean Hannity endorses Stanford's company.
Stanford's victims speak out.
Wednesday, February 18, 2009
President Obama unveils $75 Billion Mortgage Relief Plan
In his speech at a high school in Phoenix Arizona, President Obama told Americans, “The American Dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods,” he said. “While this crisis is vast, it begins just one house and one family at a time.”
Home owners don't need to be delinquent to apply for help - but the mortgage must be owned by Fannie Mae or Freddie Mac to be eligible.
I sent an e-mail to the White House requesting clarification on how a homeowner goes about determining who owns their mortgage. I will post the information as soon as it is available.
Meanwhile, for additional information, please visit Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan from the U.S. Department of Housing and Urban Development.
or see FAQ on Foreclosure Plan posted on Anderson Coopers' blogs: http://ac360.blogs.cnn.com/2009/02/18/qa-on-the-foreclosure-plan-and-what-it-means-for-you/
Home owners don't need to be delinquent to apply for help - but the mortgage must be owned by Fannie Mae or Freddie Mac to be eligible.
I sent an e-mail to the White House requesting clarification on how a homeowner goes about determining who owns their mortgage. I will post the information as soon as it is available.
Meanwhile, for additional information, please visit Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan from the U.S. Department of Housing and Urban Development.
or see FAQ on Foreclosure Plan posted on Anderson Coopers' blogs: http://ac360.blogs.cnn.com/2009/02/18/qa-on-the-foreclosure-plan-and-what-it-means-for-you/
Tuesday, February 17, 2009
Opposition and Support for Bankruptcy Reform
Who's supporting Bankruptcy reform?
U.S. Representative Steve Cohen (D-Memphis, Tenn), chair of the House Judiciary Committee's sub-committee on commercial and administrative law is supporting bankruptcy reform. Bankruptcy filings in the state of Tennessee have climbed from 17,104 in 2007 to 18,841 in 2008.
David Kennedy, U.S. Chief Bankruptcy judge for the U.S. Bankruptcy Court in West Tennessee is also supporting wholesale changes to the U.S. Bankruptcy code. Kennedy and many other bankruptcy judges and trustees are recommending targeted reform of the massive 2005 amendment that overhauled the U.S. Bankruptcy law.
H.R. 200 and its Senate companion bill, S 61, would allow bankruptcy judges the power to modify home loans - a power they do not have when it comes to the primary home of a debtor. Current law allows them to modify the mortgage for a vacation home, commercial properties and other corporate debt, but not a primary home. The proposed legislation, as written, has a provision that provides lenders a equity share in the home if the homeowner sells the home within five years of the bankruptcy. *
I personally believe this clause should be removed from the bill. With the economy in turmoil, many Americans may be forced to relocate to different parts of the country or the world in order to remain employed. Equity stripping, in any form should be abolished. Predatory lending practices should not be encouraged by state or federal legislators.
Volunteer lender modification programs are not successful in part because mortgage servicers are not that interested in making volunteer modification programs work.
George Stevenson, a chapter 13 bankruptcy trustee, stated that government intervention may be the only way to provide relief to homeowners who are having difficulty getting back on their feet.
Meanwhile, the Mortgage Bankers Association of Washington and other major financial institutions claim that HR 200 would be a disaster for consumers and that modifications from the bench will further destabilize banks who are already struggling to stay alive.
But financial advisers and other consumer advocates applaud the bill calling it a badly needed move to stem the avalanche of foreclosures that are destabilizing the housing market. Best of all, it doesn't cost taxpayers a dime.
The omnibus bill would also contain other anti-foreclosure measures, including one that allows lenders to modify securitized loans without facing legal challenges from bondholders.
The banking industry claims that allowing judges to modify loans will lead to higher rates, fees and and down payments for all borrowers going forward. Not true, claim financial advisers, bankruptcy experts and real estate professionals.
Despite the threats and hand wringing by mortgage banks, consumer and political support for the proposed legislation is growing.
The lending industry has nicknamed the legislation "the cramdown legislation." Proponents ask, why do we call something that is aimed at keeping people in their homes "cramdown legislation" when the last time we modified bankruptcy laws it was called "consumer protection"?
Tony Proctor, a CFP at Proctor Financial in Mass., who manages a portfolio of $190 million counsels clients to do whatever they have to do to make sure they have a home to live in. He believes that lenders in the future are going to discount the problems they see on people's credit reports during this time frame. In fact, he recommended that Congress amend the bill to ensure that any credit blemishes that have occurred during this recession would be wiped off credit reports within three years.
Many Conservatives disagree. "Fundamentally, strip-down is a poor "fit" for the problem of rising foreclosure rates. Its benefits would fall disproportionately to those who can afford their mortgage payments and do not need relief, while those whose homes are at risk would typically obtain only temporary relief at a great personal cost. The result would be to impose enormous expenses on mortgage and consumer lenders—at a time when doing so would be destabilizing and counterproductive—in exchange for extremely limited benefits for vulnerable homeowners." says Andrew Grossman, of the Heritage Foundation. http://www.heritage.org/Research/LegalIssues/bg2242.cfm
But Grossman neglects to mention that many of the lenders who are voluntarily participating in existing loan modification programs are insisting that borrowers sign documents that provide the lender with an equity share in the property. Many lenders also pay their modification employees a commission for securing a higher interest rate from distressed borrowers than they would pay if an attorney or a judge modified the loan. In other words, the lenders are more interested in maintaining a profit than they are in re-structuring a loan that will ultimately allow a homeowner to remain in the home.
In order to market pre-pays, lenders tell borrowers that they will receive a lower interest rate if they accept a prepay penalty. That may be so. But loans with pre-pay penalties pay a bigger yield to spread premium than regular Fannie Mae loans. So, a number of originators are motivated to sell loan products with pre-pays in order to make a larger profit on the loan.
Some may ask, what's the harm in that? We live in a capitalist society where cash is king - sure, there's some risk...
Indeed, there is risk. What happens if the homeowner is forced to relocate in order to keep his/her job or a family member has a medical emergency? The average hard pre-pay penalty can strip $6,000 or more from the home owner's equity. (Pre-pay penalties are a form of equity stripping and are considered in many circles a form of predatory lending).
Prepay penalties should be abolished to protect a citizen's right to relocate or sell a home in the event of a job relocation or medical emergency.
It is estimated that 47 million Americans are currently without medical insurance and that up to 80% of bankruptcies filed are caused by medical emergencies, not misuse of consumer credit.
In modification proceedings, many lenders ask distressed homeowners to sign over a portion of their equity in order to modify the loan. Remember, the homeowners who are modifying loans in order to keep their homes have to re-pay every penny of their missed payments -- so why should they be forced to sign over a portion of their equity to a lender in order to keep their home?
No matter how you slice it, lenders appear to be hell-bent to strip homeowners of a portion of their equity in order to ensure that they receive a larger profit for the loan if the borrower is forced to sell the property to protect his/her credit.
Let's step outside the box for a minute. What could be done to protect lenders and borrowers and provide additional stability to the housing market?
What if FHA and other government residential loan programs included a mortgage insurance policy that covers lenders and homeowners in the event a borrower defaults on the loan? (The insurance policy can make payments on behalf of the borrower for a set period of time, let's say, 6 to 12 months).
If all borrowers, regardless of their credit profile share a portion of the risk, lenders can continue to provide borrowers from all walks of life with low interest, low fee and low down payment mortgages. In addition, homeowners will have limited protection from foreclosure if they have a medical emergency or period of unemployment from economic downturns.
Under this scenario, both lenders and homeowners are secure in the knowledge that they are covered for a certain period of time if a borrower loses a job or has a serious medical condition. This isn't a freebie - it's an insurance policy that protects homeowners and lenders from foreclosure for a pre-determined period of time.
Congress could also require credit reporting agencies to drop bankruptcies, foreclosures and other credit blemishes from reports after three years for individuals who have been harmed by the current recession.
Finally, stop charging low income borrowers higher interest rates. In order to provide opportunities for home ownership, FHA and other government loan programs can provide low income borrowers with affordable fixed rate loans that are based on the borrower's ability to re-pay the loan, not credit scores.
After all, many of the families who are currently in crisis have maintained unblemished credit reports until now.
U.S. Representative Steve Cohen (D-Memphis, Tenn), chair of the House Judiciary Committee's sub-committee on commercial and administrative law is supporting bankruptcy reform. Bankruptcy filings in the state of Tennessee have climbed from 17,104 in 2007 to 18,841 in 2008.
David Kennedy, U.S. Chief Bankruptcy judge for the U.S. Bankruptcy Court in West Tennessee is also supporting wholesale changes to the U.S. Bankruptcy code. Kennedy and many other bankruptcy judges and trustees are recommending targeted reform of the massive 2005 amendment that overhauled the U.S. Bankruptcy law.
H.R. 200 and its Senate companion bill, S 61, would allow bankruptcy judges the power to modify home loans - a power they do not have when it comes to the primary home of a debtor. Current law allows them to modify the mortgage for a vacation home, commercial properties and other corporate debt, but not a primary home. The proposed legislation, as written, has a provision that provides lenders a equity share in the home if the homeowner sells the home within five years of the bankruptcy. *
I personally believe this clause should be removed from the bill. With the economy in turmoil, many Americans may be forced to relocate to different parts of the country or the world in order to remain employed. Equity stripping, in any form should be abolished. Predatory lending practices should not be encouraged by state or federal legislators.
Volunteer lender modification programs are not successful in part because mortgage servicers are not that interested in making volunteer modification programs work.
George Stevenson, a chapter 13 bankruptcy trustee, stated that government intervention may be the only way to provide relief to homeowners who are having difficulty getting back on their feet.
Meanwhile, the Mortgage Bankers Association of Washington and other major financial institutions claim that HR 200 would be a disaster for consumers and that modifications from the bench will further destabilize banks who are already struggling to stay alive.
But financial advisers and other consumer advocates applaud the bill calling it a badly needed move to stem the avalanche of foreclosures that are destabilizing the housing market. Best of all, it doesn't cost taxpayers a dime.
The omnibus bill would also contain other anti-foreclosure measures, including one that allows lenders to modify securitized loans without facing legal challenges from bondholders.
The banking industry claims that allowing judges to modify loans will lead to higher rates, fees and and down payments for all borrowers going forward. Not true, claim financial advisers, bankruptcy experts and real estate professionals.
Despite the threats and hand wringing by mortgage banks, consumer and political support for the proposed legislation is growing.
The lending industry has nicknamed the legislation "the cramdown legislation." Proponents ask, why do we call something that is aimed at keeping people in their homes "cramdown legislation" when the last time we modified bankruptcy laws it was called "consumer protection"?
Tony Proctor, a CFP at Proctor Financial in Mass., who manages a portfolio of $190 million counsels clients to do whatever they have to do to make sure they have a home to live in. He believes that lenders in the future are going to discount the problems they see on people's credit reports during this time frame. In fact, he recommended that Congress amend the bill to ensure that any credit blemishes that have occurred during this recession would be wiped off credit reports within three years.
Many Conservatives disagree. "Fundamentally, strip-down is a poor "fit" for the problem of rising foreclosure rates. Its benefits would fall disproportionately to those who can afford their mortgage payments and do not need relief, while those whose homes are at risk would typically obtain only temporary relief at a great personal cost. The result would be to impose enormous expenses on mortgage and consumer lenders—at a time when doing so would be destabilizing and counterproductive—in exchange for extremely limited benefits for vulnerable homeowners." says Andrew Grossman, of the Heritage Foundation. http://www.heritage.org/Research/LegalIssues/bg2242.cfm
But Grossman neglects to mention that many of the lenders who are voluntarily participating in existing loan modification programs are insisting that borrowers sign documents that provide the lender with an equity share in the property. Many lenders also pay their modification employees a commission for securing a higher interest rate from distressed borrowers than they would pay if an attorney or a judge modified the loan. In other words, the lenders are more interested in maintaining a profit than they are in re-structuring a loan that will ultimately allow a homeowner to remain in the home.
Grossman also discusses the negative effects bankruptcy can have on an individuals credit profile. Ahem. Foreclosures are also reported on credit reports for 7 years. In addition, borrowers can lose all of their equity or find themselves still owing the lender money after the foreclosure is completed.
Distressed homeowners should seek the counsel of a competent attorney before agreeing to a loan modification, foreclosure or bankruptcy. For those who are destitute, there are a number of non-profits who specialize in bankruptcy and foreclosure counseling.
Where should we draw the line as consumers? First, the majority of states have passed legislation that allow lenders to impose pre-pay penalties on loans for a certain number of years. There are no pre-pay penalties on Fannie Mae, Freddie Mac, FHA, or VA loans.In order to market pre-pays, lenders tell borrowers that they will receive a lower interest rate if they accept a prepay penalty. That may be so. But loans with pre-pay penalties pay a bigger yield to spread premium than regular Fannie Mae loans. So, a number of originators are motivated to sell loan products with pre-pays in order to make a larger profit on the loan.
Some may ask, what's the harm in that? We live in a capitalist society where cash is king - sure, there's some risk...
Indeed, there is risk. What happens if the homeowner is forced to relocate in order to keep his/her job or a family member has a medical emergency? The average hard pre-pay penalty can strip $6,000 or more from the home owner's equity. (Pre-pay penalties are a form of equity stripping and are considered in many circles a form of predatory lending).
Prepay penalties should be abolished to protect a citizen's right to relocate or sell a home in the event of a job relocation or medical emergency.
It is estimated that 47 million Americans are currently without medical insurance and that up to 80% of bankruptcies filed are caused by medical emergencies, not misuse of consumer credit.
In modification proceedings, many lenders ask distressed homeowners to sign over a portion of their equity in order to modify the loan. Remember, the homeowners who are modifying loans in order to keep their homes have to re-pay every penny of their missed payments -- so why should they be forced to sign over a portion of their equity to a lender in order to keep their home?
No matter how you slice it, lenders appear to be hell-bent to strip homeowners of a portion of their equity in order to ensure that they receive a larger profit for the loan if the borrower is forced to sell the property to protect his/her credit.
Let's step outside the box for a minute. What could be done to protect lenders and borrowers and provide additional stability to the housing market?
What if FHA and other government residential loan programs included a mortgage insurance policy that covers lenders and homeowners in the event a borrower defaults on the loan? (The insurance policy can make payments on behalf of the borrower for a set period of time, let's say, 6 to 12 months).
If all borrowers, regardless of their credit profile share a portion of the risk, lenders can continue to provide borrowers from all walks of life with low interest, low fee and low down payment mortgages. In addition, homeowners will have limited protection from foreclosure if they have a medical emergency or period of unemployment from economic downturns.
Under this scenario, both lenders and homeowners are secure in the knowledge that they are covered for a certain period of time if a borrower loses a job or has a serious medical condition. This isn't a freebie - it's an insurance policy that protects homeowners and lenders from foreclosure for a pre-determined period of time.
Congress could also require credit reporting agencies to drop bankruptcies, foreclosures and other credit blemishes from reports after three years for individuals who have been harmed by the current recession.
Finally, stop charging low income borrowers higher interest rates. In order to provide opportunities for home ownership, FHA and other government loan programs can provide low income borrowers with affordable fixed rate loans that are based on the borrower's ability to re-pay the loan, not credit scores.
After all, many of the families who are currently in crisis have maintained unblemished credit reports until now.
Saturday, February 14, 2009
In America, a new Foreclosure takes place every Thirteen Seconds
"Today, virtually every type of personal debt, including vacation homes and family farms, can be restructured in bankruptcy with the exception of mortgages on a primary residence." Senator Dick Durbin
The Center for Responsible Lending reports, "Over the next several years, 8.1 million American families will lose their homes. Because of market declines, these struggling homeowners can neither refinance nor sell. Unless their mortgages are modified to align the loan amount with the value of the home, the foreclosure crisis will continue to get worse."
Visit this link to find 2009 foreclosure statistics for your state: Latest Foreclosure Numbers by State
Senator Richard Durbin and Representative John Conyers have introduced bills (S. 61 and H.R. 200, both named ("Helping Families Save Their Homes in Bankruptcy Act of 2009") to give homeowners access to the courts as a last resort before losing their homes. This option could save close to a million homes and—best of all—it wouldn't cost taxpayers a single dime." http://durbin.senate.gov/showRelease.cfm?releaseId=306368
Naturally, there is fierce opposition to this bill from the financial industry and many Republicans. Even President Obama is balking at publicly supporting the bill. Read CUNA's (Credit Unions) press release here: http://www.mddccua.org/FOCUS/FOCUS2009/focus01202009.htm
The following financial institutions are currently on record opposing this bill.
Commercial banks & bank holding companies
Mortgage bankers and brokers
American Bankers Association
Financial Services Roundtable
JPMorgan Chase & Co.
Mortgage Bankers Association
Wells Fargo
Courtesy of Maplight: http://maplight.org/map/us/bill/79717/default
Here is a partial list of elected officials (decision makers) who have received large donations from the financial institutions listed above. http://maplight.org/map/us/interest/F1100/view/all another good resource for following the money, "Congressmen Hear from TARP Recipients Who Funded Their Campaigns"by Lindsay Renick Mayer, CAPITAL EYE, February 10, 2009.
It's time to reform bankruptcy laws that strip Americans of homeownership. Please contact your representatives in Congress to ask them to co-sponsor these important pieces of legislation.
Here's a sample letter to help you get started:
Representative Rick Larsen
U.S. House of Representatives
108 Cannon House Office Building
Washington, DC 20515-0001
Dear Representative Larsen,
I am deeply concerned about the epidemic of home foreclosures that continues to devastate families, neighborhoods, and our entire economy.
Today an unreasonable rule prevents homeowners from even the possibility of saving their homes through the court system. This is an urgent request to stop foreclosures and stabilize the economy by allowing distressed homeowners, as a last resort, access to loan modifications through the courts. I strongly urge you to co-sponsor these important pieces of legislation:
The "Helping Families Save Their Homes in Bankruptcy Act of 2009" (S. 61/H.R. 200) was introduced in the Senate by Senator Dick Durbin, and in the House of Representatives, by House Judiciary Committee Chairman John Conyers.
The Center for Responsible Lending reports, "Over the next several years, 8.1 million American families will lose their homes. Because of market declines, these struggling homeowners can neither refinance nor sell. Unless their mortgages are modified to align the loan amount with the value of the home, the foreclosure crisis will continue to get worse."
Visit this link to find 2009 foreclosure statistics for your state: Latest Foreclosure Numbers by State
Senator Richard Durbin and Representative John Conyers have introduced bills (S. 61 and H.R. 200, both named ("Helping Families Save Their Homes in Bankruptcy Act of 2009") to give homeowners access to the courts as a last resort before losing their homes. This option could save close to a million homes and—best of all—it wouldn't cost taxpayers a single dime." http://durbin.senate.gov/showRelease.cfm?releaseId=306368
Naturally, there is fierce opposition to this bill from the financial industry and many Republicans. Even President Obama is balking at publicly supporting the bill. Read CUNA's (Credit Unions) press release here: http://www.mddccua.org/FOCUS/FOCUS2009/focus01202009.htm
The following financial institutions are currently on record opposing this bill.
Commercial banks & bank holding companies
Mortgage bankers and brokers
American Bankers Association
Financial Services Roundtable
JPMorgan Chase & Co.
Mortgage Bankers Association
Wells Fargo
Courtesy of Maplight: http://maplight.org/map/us/bill/79717/default
Here is a partial list of elected officials (decision makers) who have received large donations from the financial institutions listed above. http://maplight.org/map/us/interest/F1100/view/all another good resource for following the money, "Congressmen Hear from TARP Recipients Who Funded Their Campaigns"by Lindsay Renick Mayer, CAPITAL EYE, February 10, 2009.
It's time to reform bankruptcy laws that strip Americans of homeownership. Please contact your representatives in Congress to ask them to co-sponsor these important pieces of legislation.
Here's a sample letter to help you get started:
Representative Rick Larsen
U.S. House of Representatives
108 Cannon House Office Building
Washington, DC 20515-0001
Dear Representative Larsen,
I am deeply concerned about the epidemic of home foreclosures that continues to devastate families, neighborhoods, and our entire economy.
Today an unreasonable rule prevents homeowners from even the possibility of saving their homes through the court system. This is an urgent request to stop foreclosures and stabilize the economy by allowing distressed homeowners, as a last resort, access to loan modifications through the courts. I strongly urge you to co-sponsor these important pieces of legislation:
The "Helping Families Save Their Homes in Bankruptcy Act of 2009" (S. 61/H.R. 200) was introduced in the Senate by Senator Dick Durbin, and in the House of Representatives, by House Judiciary Committee Chairman John Conyers.
This legislation has the support of Citigroup, one of America's largest mortgage lenders.
It is morally wrong that court-supervised loan modifications are available for owners of big corporations, commercial real estate, and even families with vacation properties, but are denied to families on the verge of losing their only home. The proposed legislation would not excuse families from paying their mortgage. It would simply give judges the authority to modify unaffordable loans when homeowners have exhausted other options for avoiding foreclosure.
Allowing distressed homeowners access to the court system will help protect the property values of ALL homeowners, and it will not cost American tax payers a single dime!
I join with other concerned Americans in asking you to include this legislation as an amendment to the next piece of funding legislation brought before the Congress. Please stand up for the families in our state and across the country by using your voice and your vote to give your full support to this legislation.
Thank you for your thoughtful consideration of my request.
Not a letter writer?
Follow this link to find your representatives' phone numbers,
http://ga3.org/crl/leg-lookup/search.tcl .
For Assistance, contact the WA State Department of Financial Institutions or visit the links below. http://www.dfi.wa.gov/consumers/education/foreclosure/prevent_foreclosure.htm
Headlines:
Rescue Plan for Housing in the WorksNew York Times, 02/13/09
Foreclosures Ease as Lenders Await U.S. Plan to Aid BorrowersWall Street Journal, 02/12/09
U.S. Grasps for a Workable Approach to Foreclosure CrisisWall Street Journal , 02/11/09
Study Finds Bias in Twin Cities MortgagesMinneapolis Star Tribune, 02/11/09
Foreclosure Protests at D.C. Offices Reflect TrendWashington Post, 02/11/09
Sub-Prime Mortgage Study: Crisis Has Cost Minorities Up to $213 Billion
Congressional mailing addresses:
Senator Maria Cantwell
U.S. Senate
511 Dirksen Senate Office Building
Washington, DC 20510-0001
Senator Patty Murray
U.S. Senate
173 Russell Senate Office Building
Washington, DC 20510-0001
Or contact President Obama at: http://www.whitehouse.gov/contact/
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