These days banks want to avoid foreclosure if possible and are offering alternatives to the costly foreclosure process. Deeds-In-Lieu are better for the bank and the homeowner. Giving the homeowner $1,000-2,500 if they leave the home in move in condition is a smart move on the bank’s part, many homes in foreclosure are trashed and require much more to repair.-Lou

Another Foreclosure Alternative

New York Times

HOMEOWNERS on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.

But with short sales beyond the reach of some homeowners — they typically won’t qualify if they have a second mortgage on the home — another foreclosure alternative is emerging: “deeds in lieu of foreclosure.”

In this transaction, a homeowner simply relinquishes the property, turning over the deed to the bank, in exchange for the lender’s promise not to foreclose. In a straight foreclosure, a lender takes legal control of the property and evicts the occupants; in deeds-in-lieu transactions, the homeowner is typically allowed to remain in the home for a short period of time after the agreement.

More borrowers will at least have the chance to consider this strategy in the coming months, as CitiMortgage, one of the nation’s biggest mortgage lenders, tests a new program in New Jersey, Texas, Florida, Illinois, Michigan and Ohio.

Citi recently agreed to give qualified borrowers six months in their homes before it takes them over. It will offer these homeowners $1,000 or more in relocation assistance, provided the property is in good condition. Previously, the bank had no formal process for serving borrowers who failed to qualify for Citi’s other foreclosure-avoidance programs like loan modification.

Citi’s new policy is similar to one announced last fall by Fannie Mae, the government-controlled mortgage company. Fannie is allowing homeowners to return the deed to their properties, then rent them back at market rates.

To qualify for the new program, Citi’s borrowers must be at least 90 days late on their mortgages and must not have a second lien on the home.

That policy may be a significant obstacle for borrowers, since many of the people facing foreclosure originally financed their homes with second mortgages — called “piggyback loans” — or borrowed against the homes’ equity after buying them.

Partly for that reason, Elizabeth Fogarty, a spokeswoman for Citi, said that the bank had only modest expectations for the test. Roughly 20,000 Citi mortgage customers in the pilot states will be eligible for a deed-in-lieu agreement, she said, and of those, about 1,000 will most likely complete the process.

As is often the case with deed-in-lieu settlements, Citi will release the borrower from all legal obligations to repay the loan.

In some states, like New York, New Jersey and Connecticut, banks can legally retain the right to pursue borrowers for the balance of the loan after a foreclosure, a short sale or a deed-in-lieu of foreclosure. That is one reason why housing advocates say borrowers should carefully weigh these transactions with the help of a lawyer or nonprofit housing counselor before proceeding.

Ms. Fogarty said Citi had no specific timetable for rolling out the program nationally.

Among the other major lenders, there is no formalized program for deeds-in-lieu. Bank of America, JPMorgan Chase and Wells Fargo, for instance, generally require borrowers to try a short sale before considering a deed-in-lieu transaction.

A deed-in-lieu is better for banks than a foreclosure because it reduces the company’s legal costs, and it is better for the homeowners because it is less damaging to their credit score.

Banks may also end up with homes in better condition.

J. K. Huey, a senior vice president at Wells Fargo, says her bank usually offers relocation assistance — often $1,000 to $2,500 — as long as the borrower leaves the property in move-in condition after a deed-in-lieu transaction.

“The idea is to help them transition in a way where they can keep their family intact while looking for another place to live,” Ms. Huey said. “This way, they only have to move once, as opposed to getting evicted.”

LINK

Warren Buffet’s annual letter to shareholders of Berkshire Hathaway is always eagerly awaited. Written in a witty and easy to understand style, Buffet gives his take on his businesses, the economy and the state of financial institutions and their management. He calls for stiff  personal penalties for bank executives who lead big banks to near collapse. Certainly worth a read.-Lou

Read Buffet’s Letter Here

Not that the world does not have enough problems, I woke up this morning to the news that an earthquake of biblical proportions has hit Chile. An 8.8 quake is 1,000 times stronger than the one that hit Haiti if you could imagine. Early reports from Chile have revealed massive damage and loss of life. Chile’s president has declared “A State Of Catastrophe”.

Tsunami warnings have been issued for half of the planet including Hawaii.  A tsunami has been verified and has the potential to devastate many coastal towns around the world. This should be an interesting Saturday to say the least. Let’s pray for the poor victims.

I sometimes get the feeling we are really living in the end times.-Lou

Governor Arnold Schwarzenegger is desperately trying to reduce California’s $20bn deficit

California is a greater risk than Greece, warns JP Morgan chief

Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece’s current debt woes.

Mr Dimon told investors at the Wall Street bank’s annual meeting that “there could be contagion” if a state the size of California, the biggest of the United States, had problems making debt repayments. “Greece itself would not be an issue for this company, nor would any other country,” said Mr Dimon. “We don’t really foresee the European Union coming apart.” The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state’s $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

Earlier this week, the state’s legislature passed bills that will cut the deficit by $2.8bn through budget cuts and other measures. However the former Hollywood film star turned politician is looking for $8.9bn of cuts over the next 16 months, and is also hoping for as much as $7bn of handouts from the federal government.

Earlier this week, John Chiang, the state’s controller, said that if a workable plan to reduce the deficit and increase cash levels is not reached soon, he will have to return to issuing IOU’s, forcing state workers to take additional unpaid leave and potentially freezing spending.

Last summer, California issued $3bn of IOU’s to creditors including residents owed tax refunds as a way of staving off a cash crisis.

“I can’t write checks without money; that’s against the law. My main goal is to keep the state afloat, but I won’t be able to do it without the help of new legislation,” said Mr Chiang.

LINK

This is pretty big news. The world public is being prepared for a move away from the dollar. This is not good news for a county with $13 trillion in debt and an annual budget deficit of $1.5 + trillion. After some near term deflation, we are going experience inflation like never before. It’s sad to see the once almighty dollar treated with such disdain. How can a dollar crisis not be in our future? Whether it’s 6 months from now or 6 years, it will surely come and the damage will last for many years. We are living history my friends.-Lou

Head of IMF Proposes New Reserve Currency

IMF’s Strauss-Kahn suggests IMF may one day provide global reserve asset

AP-Dominique Strauss-Kahn, the head of the International Monetary Fund, suggested Friday the organization might one day be called on to provide countries with a global reserve currency that would serve as an alternative to the U.S. dollar.

“That day has not yet come, but I think it is intellectually healthy to explore these kinds of ideas now,” he said in a speech on the future mandate of the 186-nation Washington-based lending organization.

Strauss-Kahn said such an asset could be similar to but distinctly different from the IMF’s special drawing rights, or SDRs, the accounting unit that countries use to hold funds within the IMF. It is based on a basket of major currencies.

He said having other alternatives to the dollar “would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country.”

Strauss-Kahn, a former finance minister of France, said that during the recent global financial crisis, the dollar “played its role as a safe haven” asset, and the current international monetary system demonstrated resilience.

“The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand and the narrow supply of reserves on the other,” he said.

Several countries, including China and Russia, have called for an alternative to the dollar as a reserve currency and have suggested using the IMF’s internal accounting unit.

Strauss-Kahn said the IMF also needs to do a better job of tracing how risk percolates through the global economy.

“Here it will be essential to improve our ability to monitor several dozen large complex financial institutions that make up the `plumbing’ through which global capital flows,” he said, while leaving national regulators the job of monitoring the solvency of individual institutions.

LINK

Source: The Big Picture

The default of Greece will make the fall of Lehman Brothers look like a mere inconvenience. Spain and Portugal are sure to follow and the crisis will spread across the E.U. Big German banks have said they will not add to their already large Greek bond positions. Sovereign defaults (the bankruptcy of countries) will be a huge story the next few years, the ramifications are unknown but certainly destructive.-Lou

Greek PM Says Worst Fears Confirmed on Economy

Greek Prime Minister George Papandreou told parliament on Friday, after a visit by EU economic inspectors, that the worst fears about Greece’s economy had been confirmed.

Greece is desperate to restore investor confidence in its economic statistics, and reassure buyers of its debt, after revealing that the previous government understated its budget deficit by half.

The European Union is also pressing Greece for radical measures to curtail its deficit to prevent damage to the common currency, the euro.

“Everything that was revealed after the elections proved that New Democracy (the previous, conservative administration) fled from its responsibilities,” Papandreou said. “History confirmed our worst fears.”

“The damage is incalculable. It is not only financial or fiscal but also affects the position of the state… Our duty today is to forget about the political cost and think only about the survival of our country. Past policies make it necessary to proceed to brutal changes and reduce accumulated privileges,” he added.

Greek government officials say the EU inspectors, visiting Athens with IMF experts, have delivered a grim assessment of the nation’s economy.

Their message was that Athens will miss its targets for reducing the deficit without spending cuts of the kind that have already brought Greeks out on to the streets.

Investors, who must decide whether to buy more Greek debt when Athens issues a new 10-year bond in the next few weeks, are anxious and Moody’s agency said it could downgrade Greece’s credit rating if Greece fails to meet its budget promises.

“There is only one dilemma: Will we let the country go bankrupt or will we react? Will we let the speculators strangle us, or will we take our fate in our own hands?” Papandreou said.

“We must do whatever we can now to address the immediate dangers today. Tomorrow it will be too late, and the consequences will be much more dire,” he added.

Papandreou insisted that Greece would not seek a bailout from abroad: “We ask the EU for its solidarity and they ask us to meet our obligations. We will meet our obligations …  We will demand European community solidarity and I believe we will get it.”

“No other country will pay for our debts,” he said. “It is a matter of honor and pride for our country to put our own house in order.”   

LINK

Most checking and savings accounts fall in this category. Scary to think the bank can hold back giving you your savings. Makes you want to put your money in the mattress, or better yet, gold coins..-Lou

From FOXBusiness

Another unexpected rise in first time claims for unemployment benefits indicates that the employment situation is worsening, not improving. Looks like the stock market is realizing the economy is not improving and the recession is not over. The market is down 160 points as I write.-Lou

Weekly jobless claims increase 22,000 to 496,000

WASHINGTON (MarketWatch) — The number of people filing initial claims for state unemployment benefits jumped 22,000 to a seasonally adjusted 496,000 in the week ended Feb. 20, the Labor Department reported Thursday. It’s the highest rate since mid-November and the sixth increase in the first eight weeks of 2010. Economists surveyed by MarketWatch expected initial claims to drop to 460,000. The four-week average of initial claims rose 6,000 to 473,750. In the week ended Feb. 6, the number of people collecting extended federal benefits fell by 320,000 to 5.68 million, not seasonally adjusted. Altogether, 11.55 million people were collecting some type of unemployment benefits in the week of Feb. 6, down from the previous week’s level of 11.8 million

This is what happens when governments cut spending  in a country where the people depend on government to support them. The Western World is in for difficult times.-Lou

Strikes, clashes up pressure on Greek government

ATHENS, Greece — Some 50,000 Greek workers took to the streets and a few protesters threw rocks and red paint in clashes with police during the widest strike yet against the government’s austerity plan aimed at easing the country’s debt crisis.

The unrest flared Wednesday amid a looming deadline for demonstrating tough cuts demanded by the European Union and fresh revelations over faulty Greek data reporting that triggered the financial turmoil.

Athens is battling to calm the crisis and European fears it could spread to other countries with troubled finances such as Portugal, Spain and Italy.

Strikes grounded flights, idled cargo ships and ferries, and left commuters in Athens without most public transportation. State-run schools, tax offices and municipalities all shut down and public hospitals limped by using emergency staff.

In the capital, some 50,000 people marched through central Athens to protest spending cuts already imposed. The march itself was peaceful, with clashes taking place after it ended, and comes after public opinion polls suggest many Greeks actually recognize the necessity of painful measures.

But Wednesday was the day for the unions to push back.

“We’re all here for the same reason: the measures the government is taking. They have to listen to us,” said musician Dimitris Petridis, who marched banging a snare drum with colleagues to a funereal rhythm.

“The rise in joblessness has really hurt us. The daily wage for working at a nightclub, for many of us, is the same as it was 20 years ago,” he added.

As the march ended, riot police clashed and fired tear gas at scores of anarchist youths in the latest sign of unrest in recession-hit European countries. Groups of youths vandalized banks and storefronts, hurling rocks, red paint and plastic bottles near parliament. Three people were arrested.

Windows were also smashed at the Finance Ministry’s General Accounting Office, which has been accused by the European Union of faking statistics for years to hide Greece’s dire situation.

Greece is considering tougher austerity measures to ward off a financial crisis that has undermined the euro currency used by 16 European nations. Its troubles have raised fears that financial market contagion will spread to other weak eurozone economies such as Portugal, Spain and Italy.

The pressure on the Greek government to deliver on its promise to rein in the country’s borrowing levels ratcheted up further Wednesday with the news that Standard & Poor’s, one of the three leading credit ratings agencies, could downgrade its rating on the country within a month.

And the EU statistics agency, Eurostat, said Greek national debt figures would be revised upward after it received explanation from Greece on a currency-swap deal with Goldman Sachs in 2001.

The U.S. bank says the transactions reduced Greece’s debt by a total of euro2.37 billion. Greece’s total debt is estimated euro300 billion in 2009.

The EU has issued a vague promise to support Greece, which has some euro53 billion ($72 billion) in debt coming due this year, but Prime Minister George Papandreou’s new Socialist government has pressed for more specific guarantees to shore up market confidence.

Greece has already imposed broad spending cuts but says it is under pressure from the EU to cut salaries in the civil service. Unions say cutting Greeks’ so-called 14th salary — part of annual pay held back as a holiday bonus — for public workers would be taken as “an act of war.”

“If all these measures are enforced, unemployment will skyrocket. Our country will enter a massive recession and unemployment will reach a Europe-wide record,” union spokesman Stathis Anestis said. “This will be tragic because it will provoke social (unrest) and clashes.”

Officials from the EU and International Monetary Fund are in Athens to inspect public finances, ahead of a March 16 deadline to show signs of fiscal improvement or face imposed additional austerity measures.

Greece has promised the EU it will reduce the bloated budget deficit from 12.7 percent of gross domestic product to 8.7 percent this year. The country’s woes have caused the euro to sink against the dollar and hiked the country’s borrowing costs.

Greek unemployment hit a five-year high of 10.6 percent in November 2009, up from 9.8 percent in October