Where do we start?

The Treasury Secretary, Mr. Paulson announced that the Federal Government will be the bank of last resort for Fannie Mae and Freddie Mac. The Government has said to the World that it will not let the two principal institutions supporting our housing industry fail. Failure of these two financial giants would probably have led to a global depression. What choice did he have?

But, we are far from being out of the woods on this. We have seen estimates that up to 150 banks may fail in the coming year, many of them local and regional banks that put a disproportionate amount of their business into mortgages.

The Federal Reserve announced their new rules on home mortgages designed to protect consumers in securing home loans. The Rules have a number of provisions. 1) The Rules will require escrows for property taxes and homeowners insurance on first lien mortgages. 2) Verification of income and assets will be required as well (bye-bye stated loans.) 3) Lenders will be required to assess the borrower’s ability to repay a loan. 4) Finally, there is a ban on prepayment penalties if the monthly payment can change in the first four years of a loan (two years for higher priced loans.)

Interestingly, the majority of the rules won’t take effect until October, 2009, with the escrow provision not going into effect until 2010.

Indy Mac Bank was taken over by Federal banking officials on Friday, adding to the list of major sub-prime lenders that have failed. The Federal Deposit Insurance Corporation (FDIC) will now operate the bank while searching for a buyer.

We expect that Congress will finalize the Foreclosure bill and forward it to the President this week. We suspect that the President will work out his differences with Congress prior to a possible veto, since both Houses of Congress overwhelmingly approved their version. Obviously, a Presidential veto would be overridden.

We will keep you updated on future announcements. As always, if you have any questions, let me know.

Have a great week.