FinancialEdge: Requirements For A Post-Housing-Bust Mortgage

With all of the talk about foreclosures and stagnant home sales it is easy to overlook the fact that people are still out there trying to buy houses. For the vast majority of people, buying a house still means qualifying for a mortgage. With that in mind, what does it take to get a bank to sign off on a mortgage these days?

FHA Still in the Game 

It would take a separate column to detail all of the differences between Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). The FHA does not make loans, does not buy mortgages and operates basically as a government-subsidized mortgage insurance company. The FHA is still operating and homebuyers can still get FHA-insured loans. Mortgage qualification rules are still changing in the wake of the subprime crisis and there is still some confusion between proposed rules and implemented rules. Moreover, there is a difference between FHA minimums and the minimums of the banks that write FHA-insured mortgages. (Don't be overwhelmed when filling out these forms. For more, see Understanding FHA Home Loans.)

Read the full column here:
http://financialedge.investopedia.com/financial-edge/0911/Requirements-For-A-Post-Housing-Bust-Mortgage.aspx#axzz1Z4sq1iTA

Investopedia: Bank of America's Incredible Shrinking Liability

At this point in the credit crisis it would seem that anybody claiming to have a firm handle on everything going on is either crazy, dishonest or a singular genius. Take the latest news from Bank of America (NYSE:BAC) - the terms of a deal to settle much of its liability to Freddie Mac (Nasdq:FMCC) and Fannie Mae (Nasdaq:FNMA) for mortgage put-backs not only surprised most observers, but angered a lot of people all over again. Moreover, there is uncertainty everywhere an investor cares to look regarding whether or not other banks will be able to strike similar deals and how these banks will deal with other claimants.

A Quick Take on the Deal
Early in January, Bank of America announced a deal with Freddie and Fannie whereby it was settling its potential put-back obligations to these entities for a total of $2.8 billion. This deal covers just mortgages related to Countrywide (which Bank of America bought), but will avoid more litigation regarding BAC's ultimate responsibility in buying back misrepresented or outright fraudulent mortgages under the terms of the put-back agreements that it had with these agencies.

In many respects, this was a deal so favorable to BAC it was close to outright theft. The liability between BAC and Freddie/Fannie could have been anywhere from $10 billion to upwards of $20 billion depending upon the assumptions an investor wanted to make about the settlement. As it stands, even more than $20 billion would have represented only about a 1% delinquency rate for these loans, when the actual rate has been running more like 11%.

It is also worth mentioning that this is tantamount to another bailout for the banks. Freddie/Fannie are under direct government control, while Bank of America (along with Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and many others) needed very cheap government money to stay liquid. What is interesting about this move, though, is that it avoids the splashy headlines of another TARP-like program that would be announced from a White House or Congressional podium. (For more, see Liquidity And Toxicity: Did TARP Fix The Financial System?)

Please follow this link for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Bank-Of-Americas-Incredible-Shrinking-Liability-BAC-C-GS-AGO-MBI-WFC-AZ0110.aspx