Our Changing Globe

Posts Tagged ‘Obama’

The Treasury Department finally announced on Wednesday, April 4th the names of the first six banks that will get massive government subsidies.

The names of banks and what they’ll be getting are;

• JPMorgan Chase – $3.6 billion in subsidy and incentive payments
• Wells Fargo – $2.9 billion
• Citigroup – $2 billion
• GMAC Mortgage, $633 million
• Saxon Mortgage Services, $407 million
• Select Portfolio Servicing, $376 million

The government’s program was announced on February 18th but specific details have only just become available, and the delay caused major frustration amongst housing counselors and distressed homebuyers.

The stated aim of the program is to help as many as nine million borrowers to stay in their homes, and Wells Fargo recently said in a statement, “We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership”.

The two-part plan requires servicers to either reduce monthly payments to no more than 31% of an eligible borrower’s pre-tax income, or to refinance eligible mortgages, even if the homeowner has little or no equity.

The government has so far allocated $75 billion, to subsidize a part of the payment reduction, and it will also provide tens of thousands of additional dollars in incentives to participating servicers and borrowers.

Servicers will receive $1,000 for each loan modification, plus another $1,000 a year for three years if the borrower stays current. On top of this, the government will provide an additional $500 to servicers, and $1,500 to mortgage holders if they modify their at-risk loans before the borrower falls behind.

Homebuyers will get up to $1,000 a year for five years if they keep up with their payments, and the money will be used to lower their loan principals.

When asked “Where all this money come from?”, Treasury spokesman Andrew Williams answered, “We’re confident we’ll have enough money”.

Using his now familiar, half-full-half-empty metaphor, President Obama declared in a speech made at Georgetown University yesterday (April 14th) that the economy is moving in the right direction, whilst cautioning that the country is not yet in the clear.

He said that what we are now experiencing, is far from a normal downturn in the business cycle, and he put the blame squarely on greed and irresponsibility, adding that the problem is being worsened by both politicians that have an outsized interest in scoring points, and by an over-impatient media.

“There is no doubt that times are still tough. But from where we stand and for the very first time, we are beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of an America’s future that is far different than our troubled economic past”.

Obama’s speech sent a mixed financial message, which failed to offer any real comfort, and in spite of additional comments by the Federal Reserve Chairman, Ben Bernanke, who earlier said that, “the recession may be bottoming out”, the facts on the ground suggest no reason for such optimism, with just released statistics showing that retail sales fell in March by 1.1% which is something which was totally unexpected.

Obama made no important policy announcements, and simply painted a broad picture of what his administration had already done, adding that a complete recovery would depend on two things, “building a new foundation for the U.S. economy and making changes in the political landscape”.

Paraphrasing Jesus’ Sermon on the Mount, Obama said, “We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock. We must lay a new foundation for growth and prosperity a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad”.

Wrapping up his speech, he said, “When a crisis hits, there’s all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furor has died away and the media coverage has moved on, instead of confronting the major challenges that will shape our future in a sustained and focused way, and this can’t be one of those times”.