Attorney Generals in 49 out of 50 states voted for this mortgage settlement. All sounds good on the surface, politicians and banks are coming forth and declaring victory.

Mortgage Forclosure

Mortgage Foreclosure

Let’s take a closer look. The top 5 banks The signatories to the deal are Bank of America, Citibank, Wells Fargo & Co., JPMorgan Chase and Ally Financial (formerly GMAC), which handle payments on more than half the nation’s outstanding 27 million home loans and therefore have been at the center of the servicing and foreclosure abuses the settlement is supposed to end.

  • How much of this will translate into an outlay of cash by the five banks? Not much, if any.

On the surface it would seem that it is a $25 Billion dollar settlement when in fact it is not. The only cold cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, with the rest going to the federal and state governments to pay for regulatory programs.

Even the government acknowledges that a lender typically benefits when ways are found to keep a home out of foreclosure — a lender loses an average $60,000 on every foreclosure, according to figures the federal government disclosed in connection with the settlement announcement. It’s been institutional resistance and legal entanglements, not economics, that have kept more modifications from going forward.

Many of the loans destined to be modified under the settlement aren’t even owned by the banks, but rather by investors — the banks just collect the checks.

  • Investors such as pension funds
  • 401(k) plans
  • Insurance companies and the like

Parties that did not themselves engage in any of the wrongdoing covered by the settlement.” If I’m an investor, how am I with taking this kind of hair cut? This will not sit too well with the investor community.

What about homeowners? They don’t get much, especially in relation to the scale of the housing crisis.

  • More than 2 million owners have lost their homes to foreclosure during the last four years.
  • This deal will provide 750,000 with a payment of $2,000 each.

Some 11 million homeowners are underwater by about $700 billion combined, or an average of nearly $65,000 each. In a transport of optimism, federal officials are projecting that this deal will help 2 million of them, to the tune of perhaps $20,000 each. By the way, loans owned by the government-sponsored firms Fannie Mae and Freddie Mac aren’t eligible for this relief. Since they own or control the majority of all outstanding mortgages, that’s a rather large black hole.

Remember though, Fannie Mae and Freddie Mac are bleeding money every month, and our owned by the government. They  have paid out huge bonuses even in these tough economic times. Fannie Mae was the fair-haired child of Barney Frank . You may recall in July of 2008 Barney was on record defending Fannie Mae, how strong they were, and how dare anyone question their motives and financial strength. They collapsed less than 4 months from his statements to the public and Congress.

They were the entities that forced the banks into doing Stated Income Loans, No Assets Loans, NINA or No Income, No Asset Loans. While some may point fingers at the banks, Fannie and Freddie were at the forefront pushing these types of mortgages on the banks, and lenders, trying to increase homeownership to individuals who never should have been put into a house to begin with.

The settlement, meanwhile, provides cover for other stealth bailouts. On Thursday, the day of the big parade, the U.S. Office of the Controller of the Currency quietly settled claims against BofA, Wells Fargo, Citibank and JPMorgan Chase related to cease-and-desist orders the agency issued last year over the banks’ crooked mortgage servicing and foreclosure activities.

The agency says it settled those claims for $394 million. The actual figure is zero. That’s because the agency won’t ask for any of the money as long as the banks meet their obligations under the mortgage settlement. This is the kind of fun with math that helped get us into the housing crisis in the first place.


To Solve the Crisis You Must Solve Three Problems

2012 Foreign Debt Maturing

2012 Foreign Debt Maturing

There are three main problems in Europe.

  1. Most of the banks are massively insolvent, because they have 30 times their capital invested.
  2. The sovereign debt of countries that are going to have trouble paying that debt. If the banks have to mark down the debt to what its real value is – or to what it will soon be – they will be bankrupt on a scale that makes 2008 look like a waltz in the park. If banks can’t make loans, then businesses must cut back, which means fewer jobs, products, and services, which quickly becomes an ugly spiral. If countries must step in and save their banks, then they have to assume some of the losses.
  3. The largest problem, and that is massive trade imbalances. Germany exports products to the peripheral European countries, which run trade deficits. A country cannot reduce private-sector leverage, reduce public-sector leverage and deficits (balance its budget), and run a trade deficit all at the same time. That is simple, unavoidable math, based on 400 years of accounting understanding. Ultimately, there must be a trade surplus if leverage and debt are to be reduced.

For most of the past two years, European leaders have tried to deal with the problems as though they were short-term liquidity problems: “If we just find the money to buy some more Greek bonds, then Greece can figure out how to solve its problems and then pay us back. Given enough time, the problem can get solved.”

They have now arrived at the understanding that it this not a short-term problem. Rather, it’s a solvency problem of the various governments, which of course creates a solvency problem for their banks. They are now addressing the problem of solvency and providing capital until such time as certain countries can get their budgets under control and the bond market sees fit to provide the capital they need.

Greece runs a trade deficit of about 10% of GDP. Until they can stop that bleeding, they cannot get their government and private budgets under control. It is not simply a matter of cutting budgets or raising taxes. Indeed, their economy will continue to shrink, making it more difficult buy foreign goods without increasing their own production of goods and services. It is a vicious spiral. And that same spiral will spin up to take in all of Europe. Again, more on that later, as we consider what their choices are.

But for now, let’s start with my contention that if you do not solve all three problems you do not solve the real problem. Greece cannot “stand on its own” without a change in its cost of production relative to Northern Europe. Neither can Portugal, et al., unless Germany either changes how it exports and consumes more, or Germany is willing to fund Greek (and Portuguese and Italian and…) debt, so those countries can continue to run large deficits.

The eurozone debt crisis returned with a vengeance on Friday as Standard & Poor’s, the credit rating agency, downgraded France and Austria – two of the currency zone’s six triple A rated countries – as well as seven nations not in that top tier, among them Italy and Spain.

S&P, under political fire since it announced a review or eurozone debt in December, gave 14 of 16 countries – including France, Italy and Spain – a negative outlook, which it said meant a one-in-three chance for each country of a further downgrade this year or next.

The agency downgraded France and Austria by one notch to double A plus, while it cut Italy Spain and Portugal by two notches. Portugal has now been relegated to “junk” status by the three main rating agencies following similar actions by Moody’s in July and Fitch in November. Ireland held its rating.

The agency’s move prompted an immediate political backlash.

Earlier, financial markets slid as news of the downgrade leaked and investors sold the euro, eurozone equities and sovereign bonds, especially from Italy and Spain – the latter move pushing down yields for German Bunds and US Treasuries, held to be havens.

The downgrades came in lockstep with new problems for the eurozone on other fronts – debt-restructuring talks between Greece and holders of its debt broke down over how large bondholders’ losses should be, raising the spectre of a Greek default in March.

The downgrades – announced after US markets closed on Friday – come after the S&P in December warned the six triple A nations and nine others in the eurozone that it had put their creditworthiness on review as a result of the debt crisis and the worsening economic outlook.

Cyprus, also downgraded on Friday night, was already on review, and Greece not under consideration.

Ahead of the statement confirming the downgrades, the euro fell more than 1 per cent to a 17-month low against the dollar and early gains on European stock markets were erased.

Sovereign bond markets were also rattled, with Italy and Spain’s borrowing costs creeping up again after several days of sharp drops. France’s 10-year bond yields edged up, to 3.05 per cent, while Germany’s 10-year bond saw its yield drop to 1.75 per cent as investors returned to safer assets.

There are 40 elections in 2012. Everybody is going to do their best to get us through the elections. Governments will continue to print money, propping up economies all over the world. Will it work this time? Will it postpone the crisis in 2012 and push it into 2012?

Your thoughts?

The total of the U.S. debt load is now $15.2 trillion, more than the annual value in goods and services of the country’s economy. Now exceeding 100% of the US Economy.

US Debt % to GDP

US Debt % to GDP

Although the specific figure is difficult to pinpoint, the benchmark was likely reached at some point in the last few days, USA Today first reported Monday.

  • In layman’s terms, it means the world’s largest economy now collectively owes more than its entire annual output is worth.

The total value of all the goods and services that the U.S. produces sits at $15.17 trillion. That figure is growing at a 4.4 per cent annual pace at the moment, not enough to keep up with the increase in America’s debt load which is growing at a 10% clip.

“It’s a bit like saying your debt is as high as your family’s annual salary,” said Ian Nakamoto, research director with MacDougall MacDougall & MacTier in Toronto. “It’s a pretty symbolic moment.”

  • America’s national debt has reached a worrying milestone – it is now as big as the whole of its economy.

Steve Bell of the Bipartisan Policy Center, which has proposed cutting nearly $6 trillion over ten years, said: ‘The 100 per cent mark means that your entire debt is as big as everything you’re producing in your country. Clearly, that can’t continue.’

President Obama’s 2012 budget shows the debt

passing $26 trillion ten years from now.

Among advanced economies, only Iceland, Greece, Ireland, Italy, Japan and Portugal have debts larger than their economies.

The Fed promising to be on hold through 2013 means there’s little aspect for relief in interest margins and rates. The credit recovery we’ve seen is starting to wane … so really it’s all about profitability at this point, and that’s a tough picture.

The smaller you go in the banking space, the more spread-dependent you are and the less diversified your revenue stream is.

Mergers & Acquisitions

Mergers & Acquisitions

Are small banks better off growing or shrinking loans?

  • The Fed’s zero interest rate policy is causing a lot of the more creditworthy small businesses to just pay down loans.
  • Credit worthy borrowers is an issue.
  • The uncertainty of regulation and it’s cost are affecting small business loans.

Deposits are still being accepted, it’s certainly a real problem for net interest income growth.

Where should small banks look to find fee income?

The banking industry will lose around $12 Billion in debit card fees this year. Quite a bit of income to make up in this economic environment.

  • Some banks are adjusting fees for checking account balances. Requiring a higher average balance to avoid monthly fees.
  • Some banks are looking at providing asset and wealth management services. Experience and execution will be critical if they go down this path. Nobody likes losing money.

92 Banks have failed this year, down from 2010. 2012?

  • With the FDIC dragging their feet on shuttering these failing institutions, it makes it hard for investors to come in at that point to bale out the institution.
  • Since early 2007 – 510 banks have “imploded.”
  • U.S. Home Prices Fell More Than Forecast. “Residential real estate prices dropped more than forecast in the year ended October, showing a broad-based decline that indicates the housing market continues to be weighed down by foreclosures.” This will affect banks that have real estate portfolios.

For the stable banks that are already at the 9% to 10% capital level, they’re going to be throwing capital off. You’re looking for the best managers to use the capital to acquire others, and you’re looking for the bad managers to make sure that they’re not doing anything else and they’re returning it to the shareholders if they’re generating capital from a good franchise.

What are the biggest challenges for community banks in the next 12 to 18 months?

  • The smaller you are, the more difficult it is incrementally to absorb costs.
  • If we are hit with another recession…not so sure we’ve come out of the last one.
  • Banks are just running out of some levers they can pull. How far can you cut expenses?
  • Competition. Banks that are better marketers using Social Media to increase brand awareness, and meet customer expectations at point of need.
  • Mergers and Acquisitions; Stand alone, merge or acquire.

Is this the new normal?

Facing a reaction from an angry public and heightened scrutiny from regulators, banks are turning to all sorts of fees that fly under the radar. Everything, it seems, has a price.



Nationwide, credit unions are en vogue. And while some of these new credit union members will transfer their checking accounts, direct deposits, electronic bill pays, and even their credit cards and loans, many will not. The majority of the benefit goes to the bigger Credit Unions, those with assets over $100 Million seeing the biggest increase in new members from banks. Unfortunately for the small to medium size Credit Unions, it’s hard to compete for lack of products/services which cost money to roll out. A good example of this is mobile banking.

Credit Unions need to step up their Social Media Marketing efforts to compete and give consumers what they want. Failure to do so will only put more pressure on those to survive. Now is the perfect time to implement a Social Media Strategy.

Banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm.

It costs most banks between $200 and $300 a year to maintain a retail checking account, from staffing branches to covering federal deposit insurance premiums. In the past, the fees banks collected from merchants each time customers swiped their debit card or overdrew their account covered much of that expense. Banks offered “free checking” to the masses as a result.

Even as Bank of America and other major lenders back away from charging customers to use their debit cards, many banks have been quietly imposing other new fees.

  • Need to replace a lost debit card? Bank of America now charges $5 — or $20 for rush delivery.
  • Deposit money with a mobile phone? At U.S. Bancorp, it is now 50 cents a check.
  • Want cash wired to your account? Starting in December, that will cost $15 for each incoming domestic payment at TD Bank.

Banks can still earn a profit on most checking accounts. But they are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

But the economics have drastically changed over the past two years. Income earned on deposits has fallen, while the revenue gained from fees has plunged by as much as half because of the new regulations. Today, according to Oliver Wyman, banks are expected to take in, on average, between $85 and $115 in fees a year per account — making it especially hard to turn a profit on customers with low balances.

“They have got to make up the income some place,” said Vernon Hill II, the founder of Commerce Bank whose retail-oriented approach transformed it into a large regional player before it was sold to TD Bank. He added: “I think we will see a lot more fees.”

Some policy makers are already fed up. This month, two Democratic senators, Richard J. Durbin of Illinois and Jack Reed of Rhode Island, urged the Consumer Financial Protection Bureau to adopt a more consumer-friendly disclosure form, akin to the nutrition label on food packaging, for all the fees attached to a checking account.

“Simply put, consumers have had enough of banks that try to sneak fees past them that are hidden in fine print or imposed with no notice at all,” they wrote. Last year, a Pew Charitable Trusts study found that bank customers could potentially incur 49 different fees on a typical checking account.

New fees, of course, will cover a small part of the gap in profits. Banks are also hoping that new products catch on. Some are steering lower-income customers to prepaid cards, which were not affected by the reduction in debit card swipe fees.

Banks are also lowering the rates they pay savers. The average interest rate for deposits has fallen to 0.74 percent from 0.8 percent during the first six months of this year, according to Market Rates Insight. Most consumers barely notice, but it translates into real money — about $1.5 billion a month in savings industrywide.

Banks may also be betting that consumers will not notice the quiet creep of existing fees. As Richard K. Davis, U.S. Bancorp’s chief executive, told investors on a recent conference call: “We’ll see if our customers complain and move, or just complain,” he said.

In the end whether it is a Bank or Credit Union, businesses need to make a profit. Without profit, there will be no jobs. The flexibility for the consumer is still an overwhelming amount of choices and options to choose. In the end each of us have the freedom to choose, consumers need to do their homework, and choose what best suites their needs.

What is your choice? Stay or Switch?

For the first time in American History we will surpass $15 Trillion in our National Debt today! That basically equals 100% of our Gross Domestic Product. In the book “This Time is Different” by Reinhart and Rogoff, once a country reaches 90% of GDP, buckle your seat belt, well we blew by that number.

Forget all the pundits who keep saying it will affect our children and grandchildren. No one is talking about how the debt is affecting all of us today. The debt was $10.626 trillion on the day Mr. Obama took office. We are in another depression like the 30’s, and he doesn’t have any solutions.

Here’s a video of what a Trillion Dollars looks like.

While this President states that America is a lazy country, and then goes off to play a round of golf in Hawaii. Where’s the sense of urgency in creating Jobs.

The Super Committee is a joke…another crisis deadline looms on November 23rd to come up with cuts the day before Thanksgiving. Wonder what the Pilgrims would think. If the Super Committee cannot agree, cuts will go into effect January 2013 after the elections. Exactly how do they define cuts again??? Oh…a 5% increase is baked into the budget every year, so if we only allow a 3% increase that’s considered a cut. That’s lunacy.

Tennessee Ernie Ford would be proud to hear his song being played.

Sixteen Tons of Debt…

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store

It started as a Facebook event page on Tuesday, and now it’s grown into a national movement. Saturday (Nov. 5) was Bank Transfer Day (BTD), a deadline activists set for transferring funds from for-profit banking institutions into not-for-profit credit unions closer to home.

Bank Transfer Day

Bank Transfer Day

Organized by Kristin Christian, her Bank Transfer Day Facebook page has attracted more than 81,900 RSVPs for the event since Tuesday (Nov. 1). Why? Kristen Christian wrote on the Bank Transfer Day Facebook page’s FAQ:

Facebook Page for Bank Transfer Day

“I started this because I felt like many of you do. I was tired — tired of the fee increases, tired of not being able to access my money when I need to, tired of them using what little money I have to oppress my brothers & sisters. So I stood up. I’ve been shocked at how many people have stood up alongside me. With each person who RSVPs to this event, my heart swells. Me closing my account all on my lonesome wouldn’t have made a difference to these fat cats. But each of YOU standing up with me… they can’t drown out the noise we’ll make.”

What’s the result of these social media-fueled protests? According to the Credit Union National Association, “at least 650,000 consumers across the nation have joined credit unions in the past four weeks.” That mass influx of credit union customers was further ignited on Sept. 29, when Bank of America announced it would begin charging consumers a $5-per-month fee for debit cards. Bank of America has since retracted that rate hike because of the public outcry. November 5th has come and gone. What’s your assessment?

  • Two years ago it took 15 banks to control 50% of the asset’s in this country. Today…5 banks control 50% of the assets, while the remaining 7500 banks and 7400 credit unions control the remaining 50%.
  • The number of Credit Unions across this country continue in decline. Once peaked at 23,866 in 1969. Over the past 5 years we’ve lost over 1,000 Credit Unions. Credit Unions like banks, the big just keep getting bigger.
  • Membership among Credit Unions with less than $100 million in assets has declined according to the recent CUNA Profile. So, it will be interesting to see what asset class of Credit Union benefited from this movement.
  • In researching this issue with CUNA, here is their statement.  The growth is particularly noticeable at larger credit unions–those with $100 million or more in assets, CUNA President/CEO Bill Cheney said.  They account for about 20% of all credit unions, but serve about 80% of credit union members.

Banks hold $12,284,305 in assets according to the Federal Reserve Bank while Credit Unions hold $954,757 according to CUNA.

Total Bank & Credit Union Assets 2011

Total Bank & Credit Union Assets 2011

The beneficiary of this movement seems to be the big Credit Unions. Hopefully the small banks, and small credit unions can step up their Social Media Marketing to take advantage of this opportunity.

What do you think will happen as a result of this movement?