Archive for January, 2010

Banking Industry: Politics of Punishment

The politics of punishment are tricky. Take the playground, for example. The boy in the striped shirt not only pushed your child out of the way at the top of the slide, but also gives your child a good kick for his efforts when he reaches the bottom. You can comfort your own child, but you can’t truly punish the boy in the striped shirt; he is a stranger. You can hope that his parents have a vigilant eye on the playground and will step in and say something, but that doesn’t always happen.

It’s even trickier to punish adults who are acting within legal parameters, if not moral ones. President Obama would like to create a tax to punish banks for effectively taking the bailout money and running. He is calling it a fee, but the proposal is actually for a 0.15 percent tax on the liabilities of large financial institutions. The tax only applies to companies with assets of more than $50 billion, a rather intimate group of about 50. (Reuters)

The tax is proposed to last 10 years and estimated to generate about 90 billion for the government, the majority of that from the ten largest banks. The question is who will really be paying? In all likelihood the banks will use creative accounting to sidestep the tax, as well as share the pain with bank customers in higher fees and tighter rules.

The idea behind the tax is that the Obama administration hopes this fee will give banks and other companies an incentive to whittle down burgeoning balance sheets. Even as President Obama defends the necessity of the bailout in the first place, he has criticized the banking industry for proposing nearly record-breaking bonuses. According to the Associated Press, “Six of the biggest U.S. banks are on track to pay $150 billion in total executive compensation for 2009, slightly less than the record $164 billion in 2007 before the financial crisis struck, according to the New York state comptroller’s office.”

The President is strongly suggesting that banks pay the fee out of the bonus pool, rather than find ways to pass the cost of the fee down to the customer. However, it is more likely that banks will keep the bonuses and find ways around the tax. Some of those solutions could involve risky loans, which is what started this whole mess in the first place.

While the President is insisting that Congress will pass the proposed bank tax, it is hardly a foregone conclusion. Republicans, not to mention the financial industry, is opposing it. And just what will the bankers spend all those billions in bonus money on? According to CNNMoney, at the top of the list is real estate. Bank execs will spend money on swanky New York apartments and European vacation homes. Also on the banking bonus wish list is private school tuition, expensive vacations, boats, cars and Botox. Yes, Botox. Apparently big time bankers need to look wrinkle-free to stay competitive.

Ki is helping streamline the search for homes in the Austin MLS on his website. He provides a free search of available Austin real estate. His site has a real estate blog covering statistics on the different Austin MLS areas.

Unraveling the Financial Crisis

Getting to the bottom of the financial crisis of the last two years has begun in earnest. The bipartisan Financial Crisis Inquiry Commission, made up of private citizens with extensive financial sector backgrounds, has been given the job of unraveling the cause of the biggest financial meltdown since the Great Depression.

The blame lies not only at the feet of the banking and investment industry, but also the U.S. regulators who were supposed to be watching out for such a disaster. To discover the extent that each group is culpable, the commission will seek testimony from a wide range of financial players, including former Federal Reserve Chairman Alan Greenspan, among other current and former regulators.

Commission chairman Phil Angelides has promised to scrutinize and question the regulators as much as the private sector. One of the early people in the hot seat, Federal Deposit Insurance Corp Chairman Sheila Bair, admitted that mistakes were made. “Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities,” she said. (Reuters) Bair admitted, as others are likely to do so, that when the profits are sky high, it’s hard to look for the cracks in the foundation.

As Time magazine pointed out recently, Congressional investigations after a crisis are not rare, though it’s been a long time since one investigated a financial crisis. In 1912 the Pujo Committee was followed by the Pecora Commission in 1932. The current commission could become known as the Phil Commission after the chairman, to keep the alliteration going.

As an extension of the Fraud Enforcement and Recovery Act of 2009, the ten members of the commission have been charged with scrutinizing 22 specific areas. According to the government website set up for the commission, the inquiry will include investigating fraud in the private sector, particularly in terms of the abuse of mortgage products. Also, the failure of state and federal regulators will be examined, as well monetary policy, credit ratings and global impact.

So far, those who have come before the commission have been regretful, but not necessarily apologetic. Bankers have acknowledged taking too much risk, but are quick to defend the structure of their companies and the size of their pay packages. This comes in the midst of the Obama administration trying to get banks to payback taxpayers for every penny of the bailout, to the tune of $117 billion.

Regulators have admitted that programs at many levels failed to do what they were intended to do. Key regulators like Bair, reportedly an early critic of subprime mortgages, are working to change the system, along with legislation now in Congress. The role the commission will play in the future of the financial markets may take some time to be determined, but it is likely to have a lasting impact. After all, the SEC was created from the findings of the Pecora Commission.

Luxury Homes of the Rich and Famous

Who isn’t interested in the luxury homes of the rich and famous? They have such a flair for the fantastic. No doubt, you’ll discover innovations that you never would have thought to build into your own home. From Hollywood actors to people in politics, you’ll find the famous do their due diligence in decorating.

John Travolta and Kelly Preston primarily live in Ocala, Florida, which is host to his famous airport terminal. An avid aviator, the actor extended the existing airport strip so that he can drive right up to the home after landing. Can you say, “Honey, I’m home” With all the airplanes and airport accoutrements, the fenced, highly secure and secluded home in Jumbolair Aviation Estates reveals 18-foot windows wall-to-wall in the living room that overlook the tarmac; an Art D├ęco design that graces the dining room with a 15′ by 17′ mural of a Fortune Magazine airport advertisement; and a beautiful custom wood floor motif in the entry way. You’ll find a mix of modern and metro furnishings throughout the home.

Eddie Murphy just relisted his Englewood, New Jersey estate. Dubbed Bubble Hill, the massive 25,000 square foot mansion boasts a 2-lane bowling alley, indoor swimming pool pavilion, a racquetball court, 8 bedrooms, 11 bathrooms, a home theater, gym and a recording studio. It’s on the market, if you’re interested, slashed down from its $30 million original listing price to a more affordable $14,990,000.

Jennifer Lopez and Marc Anthony just bought the home next door to their Brookville, Long Island estate. Sitting on the North Shore, the couple’s current 1970s Colonial home has 10,000 square feet of living space. JLo listed another one of her homes, a Bel Air estate, last year for $8.5 million, which was later reduced to $7.9 million.

Tom Cruise and Katy Holmes have a new magnificent mansion they named My Versailles. With a top security system and intercom throughout, the home hosts a secret entrance separate from the driveway. Not only can he come and go in private, but Cruise has a number of identical vehicles that he and his security detail drive in order to confuse intrusive fans or peeping paparazzi.

Britney Spears does not disappoint with her new lavish Calabasas mansion just outside of L.A. The Oaks Community villa has a stunning front entryway, 10 bedrooms, 10 bathrooms, a cinema, a bar, a library, an arbor, a spa and a host of other amenities.

John Edwards built a 28,000 square foot home in Raleigh, North Carolina a while back. According to county tax officials, it’s the largest in Orange County, and the annual tax alone exceeds $6 million. Sitting in the midst of 102 acres, the wooded acreage and winding driveway ensure no visibility to the home for gawking onlookers. Included in the expansive estate is a recreational building with two stages, a squash court, a basketball court, swimming pool, a “John’s Lounge” room, bedroom, bathrooms, kitchen and a 4-story tower.

Al Gore and family settled into a pal-a-tial home in an exclusive section of Nashville, Tennessee in 2002. The Bell Meade Colonial-style spread hosts an abundance of energy saving aesthetics. Gore made the improvements following much criticism he received from environmental groups after his Pulitzer-prize-winning An Inconvenient Truth debuted. Unique rooms in the home include his offices, an office for his wife and a commercial kitchen used for formal events.

Buyers can easily search for Austin real estate on Ki’s website. He has worked in Austin, Texas for over three years. He created a website to make statistics and Austin real estate information easily accessible to future owners. His site has featured Austin luxury homes along with a map search of properties in the Austin MLS.

Foreclosure Rescue – What Are The Options

If you are falling behind on your mortgage payment, your first act needs to be to contact your lender. Talk to them about your circumstances and find out what options are available to you. Oftentimes, lenders won’t reveal what programs they have available, until they receive what they call a workout packet. Generally, a workout packet includes a breakdown of all your assets, income, debts and a letter explaining how you arrived at your situation in struggling to pay your mortgage.

After your lender receives your workout packet, your case is typically assigned to a default specialist of sorts who reviews your case, interacts with the loan’s investor(s), if applicable, and determines which programs for which you are qualified. You may then be presented with one or more offers on how to mitigate the default and avoid foreclosure. There are many options that lenders offer today. Sometimes they will add what you have past due onto the end of the loan if you can prove you can pay the payments. This is called a payment deferment.

Other alternatives may be to do a reinstatement, repayment plan, loan modification or even a forbearance. What do all these terms mean? The following provides more explanation as to their applications:

* Reinstatement – This option is highly unlikely, unless you can borrow money from a friend or relative to catch up the entire past due, including accrued late charges, fees or penalties. This has been a viable alternative to some, though, since their financial hardship was temporary, like short-term disability or a family leave situation.
* Repayment Plan – Your lender determines that you will pay an additional amount over and above your regular monthly mortgage payment. The added amount is applied over a specified number of months in order to catch up the past due.
* Loan Modification – Your loan is modified with one or more new terms. With a loan modification, you may end up with a somewhat higher interest rate, lower interest, reduced payments, or some other modification that enables you to afford to pay your monthly mortgage. The government has a program that allows mortgage lenders to reduce your payments to 31 percent of your monthly income. For some, the Making Home Affordable (MHA) program has been the factor that has enabled them to save their homes from foreclosure. You may contact a MHA counselor at (888) 995-4673.
* Forbearance – Your provider will either reduce or suspend your mortgage payments for a specified period of time to enable you to get back on your feet. Once the timeframe is reached, you then begin making your regular monthly mortgage payments, along with either a lump sum or an added amount to each of your monthly mortgage payments over a specified period of months in order to catch up the past due.

If none of these alternatives work for you, you may need to consider selling your home or going into bankruptcy to save your home.

Ki has lived in Austin, Texas for over a decade. He is the architect of a website on Austin Texas real estate. The site provides a map based Austin MLS Search. Buyers can also read about the Austin market on his blog covering Austin real estate.