11 Startling Facts that Obama and Bernanke Do NOT Want You to Think About

by Martin D. Weiss

FACT #1: The official national debt now stands at $12.68 trillion — an amount equal to about 88.5% of all the goods and services our economy produces in an entire year.

FACT #2: Contingent obligations for Social Security, Medicare, Medicaid, veterans, and pensions now stand at an additional $108 trillion over and above the "official" national debt.

FACT #3: State, county and local governments are nearly $3 trillion in debt. Many can't pay and will ultimately demand that Washington assume responsibility for that debt as well.

FACT #4: Total federal, state and local government indebtedness now stands at a mind-blowing $123.6 trillion.

FACT #5: Last year, Washington added $1.4 trillion to the debt. In this fiscal year, the Obama administration will add another $1.6 trillion!

FACT #6: In addition to funding the current trillion-dollar-plus deficits, the U.S. Treasury must borrow MORE each year to replace bills, notes and bonds that are maturing.

FACT #7: This record-shattering borrowing by the Treasury has resulted in a Mt. Everest of Treasury obligations being dumped onto the market, which naturally depresses bond prices and drives interest rates higher.

FACT #8: In a desperate attempt to keep interest rates low, the Bernanke Federal Reserve has created $1.25 trillion out of thin air to buy mortgage-backed securities ... another $300 billion to buy U.S. Treasuries ... and yet another $170.6 billion to buy other government bonds — a total of nearly $1.7 trillion in all.

FACT #9: From September 10, 2008 to March 10 of this year, Bernanke increased the nation's monetary base from $850 billion to $2.1 trillion — a 250% increase in just 18 months.

FACT #10: Despite this massive money-printing, the yield on the benchmark 10-year Treasury note has STILL risen by more than one-fifth — from 3.2% to 3.86% — since December.

FACT #11: Because of this massive money-printing, the U.S. dollar has lost nearly 10% of its value in the past 12 months alone.

CONCLUSION: This unprecedented debt crisis is the single greatest threat to your wealth and standard of living in decades.

Pastor and Wife Sentenced in Drug Money Laundering, Fraud

A South Florida minister and his wife were both sentenced to prison for their roles in a $7 million mortgage fraud and money laundering scheme that gained its power through drug trafficking funds.


Pastor Garry Souffrant and his wife Yvonne, both 33, were sentenced in Miami federal court to prison terms of 20 years and 4 ½ years respectively.

Last November, the pair was convicted of conspiring to defraud major banks through the purchase of 32 residential properties throughout several counties in Florida during the height of the real estate boom.

Garry Souffrant, father of three and former pastor of God First Ministries in Miami Gardens, was also found guilty of conspiring to launder drug money.

Souffrant's brother, Miami Fire Rescue Captain Gamaliel Souffrant, 44, was also charged with the crime but was later acquitted.

The couple assisted drug traffickers to purchase homes and luxury vehicles through their family real estate business, Progressive Real Estate of Broward, according to authorities.

The couple acted as straw buyers for the dealers, hiding the source of their funds to purchase the properties.

They also diverted mortgage loans to fund the scheme and their personal expenses.

Garry Souffrant was convicted, following a five-week long jury trial, of 46 counts, including conspiracy to commit mortgage fraud, conspiracy to commit drug money laundering, mail fraud, making false statements to mortgage lenders, bank fraud, bank theft, and receipt of stolen bank funds.

Yvonne was convicted of one count of fraud conspiracy and one count of making a false statement to mortgage lenders.

All of the properties purchased by the couple have been handed over to the lenders, which include Bank of America, Washington Mutual and Wachovia.

This Week in Review

A pleasant surprise in March hiring has pushed up all long-term rates: 10-year Treasurys to 3.94%, and mortgages to 5.25%.

Even better news than the jobs: rates could have gone a great deal higher. Other new data this week were as positive as employment: the ISM survey of manufacturing in March jumped past expectations to the best reading since 2004, a 59.6 reading. The level of industrial activity is still below pre-recession, but improvement is clear.

Rebounding auto sales are pulling all the way through the supply chain from inventory rebuilding to the shop floor to raw materials. Sales were 10.4 million in 2009, and the pace now is 12 million (however, note the average '97-'07: 16.8 million). Hot emerging markets are also pulling exports from our most competitive industries, notably heavy equipment and IT.

All financial markets have been locked in debate for a year, one side expecting a "V" recovery and attendant inflation and rate explosion, the other skeptical of any recovery at all. The traditional hair-trigger for a "V" event, in every recovery for 60 years: the turn in the job market to self-feeding positive. Is this it? Nope.

The most important testimony: the bond market. Yes, it is a semi-closed day, Good Friday, but thin markets tend to magnify surprises, not dampen them. That rates have not rocketed today reflects the eye-glazing detail in the BLS employment stats.

The surprise: non-farm payrolls rose by 162,000 jobs, in line with forecasts for a big jump in temporary census workers; but instead 114,000 of the gain were real jobs, and January and February were revised up to positive ground. This is legitimate good news: at that pace the economy can at least absorb new entrants into the workforce; not enough to absorb the unemployed, but better.

Big print giveth, and fine print taketh away... one-third of the job gain was temp-help, and another 27,000 hired into the loopy, non-productive, healthcare Ponzi scheme. The companion survey of households found little improvement in anything, an additional 414,000 people joining the long-term unemployed in March alone, and "involuntary part-time" growing to 9.1 million.

The toughest single piece of fine print told the tale: wages in March fell. Only .1% percent, but fell. Looking farther back: job losses in recessions prior to 1990 were made good in 15-month Vees; the 1990 recession took 30 months, and the 2002 took 47; we are 27 months into this one, job losses three times as large as the prior two, and might have bottomed. Might. Neither inflation nor recovery is made of such stuff. Nor are good politics or public policy.

Long-run conclusions are inescapable. Beginning with the emergence of China circa 1990, American labor has come under fierce wage pressure. Two bubbles, stocks and housing, sheltered the economy for a time. Today there is no such shelter available, not in "job creation" programs or anything else. The American standard of living has and will modestly decline until we restore global competitiveness.

We will succeed and come out of this. No doubt at all. However, in the meantime, here in the happy quickening of spring, average citizens are angry at their predicament, at government, and at each other. Our politics for 200 years were based on dividing up the spoils of increasing wealth (no other nation can imagine such good fortune!).
Today, the arithmetic of pie-shrinkage is deeply upsetting to us: if you want to keep all that you have, you must take from someone else. That is the root of all of this public anger, fragmentation, and governmental dysfunction. We are not remotely conditioned to the shared sacrifice of our grandparents and parents.

There is no quick fix available, but in that knowledge, and in awareness of the deeply uneven sacrifices in our society, then understanding and patience are our most plentiful and least costly resources. (As sermons go, short is better.)

by: Lou Barnes

Housing

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Feds Increase Incentives for HAFA Short Sales

Feds Increase Incentives for HAFA Short Sales

The Treasury Department has increased the incentives for servicers, investors and distressed homeowners to participate in an expedited short sales program that goes into effect April 5.
Under the Home Affordable Foreclosure Alternative program, the servicer can receive a $1,500 incentive and the homeowner can receive $3,000 when a short sale or deed-in-lieu transaction is completed. "That $3,000 is going to turn some heads," said Travis Olsen, chief operating officer of Loan Resolution Corp. "That is going to make it truly worthwhile" for the borrower to complete a short sale, he added. LRC specializes in short sales.
Last December, Treasury proposed to pay the servicer only $1,000 and the homeowner $1,500 for relocation costs. Treasury also doubled the maximum payoff for subordinate lien holders that relinquish their claims and the reimbursement for first mortgage investors. Now the investor can pay the second lien holder up to 6% of the loan amount with a $6,000 cap and be reimbursed on a one-for-three match for up to $2,000. Originally, Treasury capped reimbursement at $1,000 and the payoff at $3,000. Subordinate liens must be extinguished under HAFA so the property can be sold and the former homeowner can walk away debt free.

The Week in Review

In an odd leap, long-term Treasury yields blew up, Wednesday the worst single day in nine months. The 10-year T-note stopped at 3.88%, a level touched for the fifth time since last June, but the violence of this move threatens upward breakout. Meanwhile, mortgages held fairly well, inside the 5.25% top that has held since August.

The peculiar part: big sell-offs like this are driven by good economic news, but that’s not what we got. February sales of new and existing homes fell (new ones at the lowest pace since stats began in 1963, 303,000 annualized), and unsold inventory rose.


Unemployment claims fell to 442,000 last week, but must drop well into the 300s to mark new hiring. The BLS says unemployment in February rose in 27 states, fell in 7, and 16 were flat. California at 12.5% unemployed rather more than offsets North Dakota at 4.1%, and Nebraska and South Dakota at 4.8%. Four states -- Florida, Nevada, North Carolina, and Georgia -- set all-time highs for percentages out of work.


So, why the rate blow-up? Three theories, so far. The first: the healthcare bill. Nobody in the credit markets believes its revenue assumptions, nor does anyone believe the expense forecast. No politics involved! If you work in the credit markets and trust government promises, your career will be short. Centerline market estimate for healthcare’s annual deficit addition: $50-$100 billion. However, no matter how accurate, that’s a long-term worry. Something short-term happened here.


Theory two: national debt of all kinds is in trouble, budgets from Club Med to Japan immensely out of balance, all selling mountains of new paper. Maybe, but the Europeans seem to be kicking the Grecian urn down the autobahn, no immediate crisis in prospect. Besides, that mess is pushing cash to dollars and Treasurys.


Theory three: The Fed is pulling the plug. The Fed has been buying MBS and associated Fannie-Freddie debt for fifteen months, the total roughly $1.4 trillion. This winter everyone wondered what would happen to mortgage rates when the Fed stops buying next week, but we’ve been watching the wrong market.


The Fed bought those Agency MBS from super-cautious investors who buy only government paper. The Fed’s buys had three effects, one indirect: they did pull down mortgage-Treasury spreads, and the buys did provide “quantitative easing” (the Fed shooting money directly into the economy, bypassing busted banks that can’t make loans). The third effect that most of us missed: the Fed’s buys soaked up last year’s entire federal deficit, pulling down Treasury yields themselves.


The mechanism: lift $1.4 trillion in government paper out of that market, and investors then used the cash to buy other government paper. Treasurys.


Next week the Fed will stop, but the Treasury will not: it will continue to sell bonds at a pace near $150 billion per month. Who will buy those bonds, and the flood issued by governments from Athens to Tokyo, and at what rates have been mysteries that will soon find answers. The Fed fears overdoing its quantitative easing: possibly inflationary, possibly generating backlash from excessive use of power, or worst of all, breeding accusations of round-heeled “monetizing” of government indiscipline.


If the Fed is out, the nightmare-dilemma end game has arrived. Cut the Keynesian deficit while the recession runs on? Or allow that spending to drive up interest rates, and maybe do more damage than fiscal discipline would do?


I think the Fed mistakes putting down panic for recovery, while we are still in a slow-motion landslide in asset values. Nothing but low rates will stop the slide. However, for the Fed to stay in the game a while longer, a commitment to fiscal discipline by Congress and Administration would be mandatory.


How different all of this might look if Mr. Obama had reversed priorities early last year: appointed a bi-partisan commission on healthcare, and put all of his momentum and majority behind getting our books in order.




by: Lou Barnes

Mortgage News Brief

HAMP Changes Encourage Principal Writedowns

The Obama administration is expanding its flagging HAMP program to address the two main drivers of foreclosures-job loss and underwater mortgages where borrowers owe more on their loan than the property is worth.

New FHA Refi Program Tackles Underwater Mortgages

The Federal Housing Administration is taking another crack at creating a refinancing program that requires principal writedowns and gives investors an option to cut their losses on underwater conventional loans.

California Extends $10,000 Homebuyer Tax Credit

California Gov. Arnold Schwarzenegger has signed legislation that re-establishes and extends the state's $10,000 tax credit for homebuyers, a program that proved so popular last year that it ran out of money by the end of June, eight months before it was set to expire.

Regulators Put Pressure on First and Second Lien Holders

Federal regulators are working on ways to match holders of delinquent and/or modified first mortgages with the holders of seconds in an effort to improve communication between the two parties so they can restructure loans.

Major Banks Summoned to Testify On 2nd Lien Mods

Executive of major banks will be testifying before the House Financial Services Committee soon on their efforts to modify and write down second liens.

Fannie Completes Second Bulk REO Auction of 2010

Fannie Mae recently completed a bulk auction of 212 real estate owned properties, its second such offering of the year.

American General in the Market with Legacy Mortgages

American General Financial Services, a subsidiary of AIG, will be coming out with two deals backed by legacy mortgage assets within the next two weeks.

Michigan Thrift Raising $250MM in Stock Offering

Flagstar Bancorp Inc. has priced a public offering of 500 million shares of common stock at $0.50 per share, which is below the stock's 52-week low.



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