Archive for March, 2008
UPDATE: Lehman Wants Repayment For Alleged Loan Scam: Reports
March 31, 2008: 12:44 AM EST
HONG KONG (Dow Jones) -- Lehman Brothers Holdings Inc. is expected to file a lawsuit in a Tokyo court Monday seeking repayment from Marubeni Corp. of $350 million in funds its says were misappropriated in a loan fraud carried out by two former employees of the Japanese trading house, according to news reports.
Lehman last year granted loans to a fund run by a medical consulting firm owned by LTT Bio-Pharma Co. in Tokyo, according to The Wall Street Journal.
The funds were to be used for the purchase of medical equipment and were secured with certificates bearing Marubeni letterhead and a seal of a Marubeni board member, the Journal reported, citing a person familiar with the matter.
The New York-based investment bank later found the board member's seal was forged, the report said.
Marubeni said it is a victim of identify fraud and that the documents involved in the transaction were forged. Marubeni said in a weekend statement an internal investigation showed it had no involvement in the forgery of documents used to secure the loans and had no obligation to compensate Lehman's for its losses.
Reports said a minimum of two meetings to finalize the deal were conducted at Marubeni's Tokyo headquarters.
Lehman entered into the transaction with two Marubeni employees who were at the time senior staff with the Japanese firm's life care business. The two employees have since been sacked, although Marubeni has not said why they were terminated.
Shares of Marubeni (MARUY) were down 7% at the midday recess in Tokyo trading Monday.
A Lehman statement cited in The Journal report said the investment bank "was closely working with authorities to seek full recovery of funds it believes to have been frequently misappropriated."
The funds weren't repaid at the end of February, prompting concern at Lehman. The unit of LTT Bio-Pharma filed for bankruptcy protection on March 19.
Lehman said that it has investigated the situation and filed a criminal complaint with Japanese police.
Both companies are cooperating with Japanese authorities, the Journal reported.
Lehman Bros. (LEH) shares fell 2.2% Friday to close at $37.87.So these are the banks that we need to bail out? Did they "lend" $300 million to a couple of Modern Day Ocean's 11 style financial heist crew? They realized there was a problem when they didn't get the payment?! Maybe they should have examined a little more than two executives and some letterhead. Mr.Mortgage's opinion regarding your tax dollars is NO BAILOUT!
Thinking about the person close to the end of the food chain, the concept of payday loans may be one of the best things that has happened since sliced bread. These short term loans provide a safety net for these people, because in most cases, they can't borrow from mainstream banks for reasons ranging from bad or no credit history and rating, to illegal immigration status. These outfits are also easily accessible, and when you go into middle or low income neighborhoods, you find payday loan centers at every other street corner. These loans also come with almost no strings attached. You don't have to put any collateral up. All they ask is that you honor your debt and pay up on time. Payday loans fill up the voids created by banks for people who need small amounts of money at short notice, and probably don't want to hit up friends or relatives for the small financial boost.
PROS
Fast to get – All you need to get a payday loan is walk into one of the centers with a pay stub and a current checking account and you are set. Convenient – To get a payday loan, you don't have to make big plans or appointments with the lender to meet you. If you need it now, you can get it now. Easily accessible – Almost anyone can get a payday loan. They will not discriminate based on your earnings. So long as you work, you're good to go unsecured – Another reason that makes a lot of people favor payday loans is the fact that you don't have to put up anything as collateral or security.
CONS
No security – Because you don't put up any collateral, when your creditors come after you, they can take away things you never thought they could, for example a paycheck
High rates – High interest rates mean high fees for each loan taken out. With time, the fees add up, even when you pay on time. For example, if you take out a loan of $300, you could fork out anything between $45 and $100 in addition to the loan and in the long run it’s not so cheap after all. Addictive – Once people start taking put payday loans, they can end up in a vicious cycle of debt. It's the easy way out, so some people might opt to keep taking loans as opposed to saving for a rainy day.
In 1997, inflation-adjusted house prices were close to their average levels over the previous half-century. Only four years later, the price of the average home nationwide exceeded anything ever seen before in the United States. Prices continued to rise for another five years, peaking in 2006 at nearly twice the average price in 1997 (as can be seen on the graph on the bottom right, which is based on data collected by the Yale economist Robert Shiller). If house prices are heading back to the levels seen in 1997, then we are facing catastrophe.
In the developing world, people are blindly turning to payday loans. This is a relatively new concept brought to them by people who have been exposed to payday loans in developed countries. In developing countries, well to most people, the thought of easy money is very alluring, especially when you think of all the beauracracy, and inconvenience of getting a loan through mainstream lenders. Like with every good thing out there, when things are done without seeking advice from the experts, the long term effect or consequences can be almost disastrous. Consider someone who sees an advertisement in the newspaper for payday loans, but when you get there, the unscrupulous dealer is asking that you surrender your car registration or your land deed, just until you payback the money.
Ask people about pay day loans and they will tell you, and not in so many words, that they are legal loan sharks. They might as well come with guns blazing. When they start hunting you down, they come with guns blazing and woe unto you if you cannot pay up. They might as well be loan sharks who want to break your legs because when people get caught up in the vicious pay day loan cycle, they feel like they have had their legs broken. The threats of repercussions are countless, ranging from taking over your bank accounts, to taking half your paycheck, to reporting you to credit agencies among others. Might this be why people are still using the back street loan sharks? Better the devil you know? In the end they are still providing the same service aren't they?
There has been a rapid decrease of payday lending stores through out the United States while a rapid increase of payday lending in other countries such as Australia, United Kingdom, Sri Lanka, India, South Africa and many others which also include the South American Countries. The reason why payday loans are doing so poorly that is in normal small business owned franchise stores is because people have turned to other sources to get payday loans. With banks all over the country now offering a form of payday loans small payday loans stores have suffered tremendously. Some have also suffered due to the fact of greed with many of them having hidden fees making it hard for the customer to payback the loan and probably ending up in a debt cycle which has seen many of this customers complaining to the governor who in turn has gotten the stores closed down and some even kicked out of the city for good. States like New York have pretty much shut down all stores and states such as North Carolina have closed down the practicing of payday lending and most lenders were told to stop making new loans and collect only the principal amount of the existing loan without any interest and under these same terms where told to pay seven hundred thousand dollars to a non profit organization for relief.
Rate cuts create long-term inflation pressure. Bought gas or food lately?
Rate cuts makes the U.S. dollar weaker.
Rate cuts reflect short-term economic weakness
But rate cuts are just one way that the Federal Reserve can impact mortgage rates; there's more than one color in the Fed's crayon box, after all.
How the FOMC treats the Fed Funds Rate today is only one part of the story. The other part is what the Federal Reserve does to make mortgages feel "safe" to market investors.
One reason why mortgage rates are slightly down this past week is because the Fed has intervened with normal market activity on multiple occasions and with each intervention, the Fed is implicitly or explicitly saying, "We will not let conforming mortgage debt default."
This "guarantee" from the Federal Reserve reduces the risk of mortgage loans sold through Fannie Mae and Freddie Mac. Lower risk = lower rates.
What the Fed says today will be as important as what the Fed does. If the press release reveals a proclivity for guaranteeing additional mortgage debt, expect mortgage rates to fall because mortgage debt will be considered "safer" for investors. The jumbo loan market will key off the conforming market.
Now and Later
It's why prospective home buyers love to ask the question: "Is now a good time to buy?" If now is not a good time, they reason, certainly later must be. Strangely, though, "Is now a good time to buy?" is a question that people ask their real estate agent but never Mr.Mortgage.
It's probably a good thing, because we have have seen a lot of changes over the last few months and we're expecting a lot more this year. But it's okay. You can ask me now: "Is now a good time to buy?"
It may appear that lenders are going overboard with their restrictions but that's not the case at all. Lenders are simply more concerned about not wasting money than they are about making money. They have made far too many trips around the middle east and asia raising capital to "waste" it on a high risk borrower. Remember a loan is a earned, it isn't one of your rights below freedom of speech.
Expect that minimum score to raise to 720.
The fourth major change we expect is based on property type. New construction condos are in ample supply in many cities and that may create an overall weakness in pricing. If a single-family home requires a 20% downpayment, banks may protect themselves by requiring 25% downpayments on condos.
It's impossible to know what these new standards will be, but expect mortgage lenders to follow their losses and trim their menus accordingly. If you find yourself in the same Risk Class as other homeowners with high default rates, expect a tough road ahead. We have seen rates from Fannie Mae on adjustable rates for low FICO borrowers move from 7%-8% to 10%+. Investors are demanding higher rates to compensate for the enormous defaults. Someone has to pay the tab.
So back to the question: "Is now a good time to buy?"
The long awaited guidelines have been released.
In our opinion very few loans will qualify and few people will want the financing. Fannie Mae is cherry picking the very best jumbo loans. Deal breakers for high-cost areas are the fact that 2nd mortgages can't be paid off using this program(item 7).
1. Fixed rates can be sold to Fannie on or after April 1; ARMs on or after May 1. The loan has to be closed on or after March 1 to be subject to the following rules; inventory loans (closed from last July to March) have to be subject to a "negotiated commitment."
2. No AUS approvals. It seems they plan to update Desktop Underwriter (their automated underwriting system) before the year is out, but they haven't done so yet and they're rollin' without it.
3. For principal residences, fixed-rate loans are limited to 90% LTV/CLTV for a purchase, and 75% LTV/95% CLTV for a no-cash-out refi. ARMs are limited to 80%/80% on a purchase and 75%/90% on a no-cash-out refi. CASH OUT REFIS ARE NOT ALLOWED. LTV is loan to value. CLTV is combined loan to value. 1st plus any 2nd mortgage.
4. For second homes and investment properties, the maximum LTV/CLTV is 60% in all cases for purchases and no-cash-out refis.
5. Minimum FICO for any loan is 660, with a minimum of 700 for LTVs greater than 80%.
6. One-unit properties only.
7. On a primary residence, existing subordinate liens(HELOCs) must be resubordinated. The new loan cannot "cash out" an existing subordinate lien. Most banks are refusing to resubordinate for clients with little or no equity. They are forcing the hand of the borrower to pay the loan off if they want/need a new first mortgage.
8. No late mortgage payments in the preceding 12 months.
9. 45% maximum DTI, with ARMs qualified at fully-amortizing fully-indexed rate.
10. Full doc only.
11. For purchases, the borrower must make at least 5% of the down payment from his or her own funds.
12. A full appraisal with interior inspection is required on all loans; if the property value is more than $1 million, a field review appraisal is also required.
13. Loans are subject to all current pricing adjustments, plus another .25 for FRMs and .75 for ARMs. Fannie is charging more for this program over any other.
The traditional jumbo loan market is serving good credit clients well and the addition of this program is helpful but it is not the savior of the home owner politicians billed it to be. Why am I not surprised?
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