Funding for the plan could potentially come out of the $700 billion financial-rescue program authorized by Congress earlier this month. The plan, which was previewed during Congressional testimony last week, would represent one of the most aggressive and sweeping moves to address the nation’s foreclosure mess, among the last elements of the crisis yet to be addressed by concerted government intervention.  Continue reading this Wall Street Journal article here.

Pittsburgh and Cleveland, two bitter Rust Belt rivals on the football field, have become the proving ground for the federal government’s controversial $700 billion bid to staunch a credit crisis that has spilled over from Wall Street to Grant Street and Euclid Avenue.  Analysts say the $7.7 billion in federal support Pittsburgh-based PNC Financial Services Group received to acquire Cleveland’s troubled National City Corp. is the first of what is expected to be dozens of government-financed acquisitions of weak banks by strong ones. The infusions are intended to restore confidence in the banking system and credit markets.

In short, Treasury Secretary Henry M. Paulson Jr. and other regulators are picking winners and losers, not only among banks but also among stakeholders.  “The Fed will not let any bank fail,” said Greg Melvin of C.S. McKee, a Pittsburgh investment manager. “They don’t care about shareholders, but no debt holder or depositor is going to get nicked in the next three months.”

That is how the regulatory script reads for PNC’s $5.6 billion acquisition of National City, announced Friday. And Mr. Melvin, a director at FNB Corp., a Hermitage, Pa. bank, expects more to follow.  “What the Fed is telling us is that you can use this money for acquisitions,” he said. “They’ll give you extra capital if you take a bad bank.” Continue reading this Pittsburgh Post Gazette Article.

According to Hope Now, 212,000 homeowners were helped by the mortgage industry to avoid foreclosure during the month of September. It marked the first time since Hope Now started compiling data that the number exceeded 200,0000, and was 30,000 more than the previous record of 192,000 preventions set in August.  Read more.

California’s Crashing Market

The bad news is that the latest round of sales is unleashing another round of pain in cities such as Los Banos, a commuter community in California’s Central Valley. With home prices already down 66% from their peak here, most homeowners owe more on their mortgages than their houses are worth. Successive deals bring new low prices, leaving remaining owners with little incentive to keep current on outsized mortgages.

Continue reading this Wall Street Journal article, here.

Myth: The Community Reinvestment Act (CRA) caused the foreclosure crisis.

Facts:
The majority of subprime loans were originated by non-CRA covered financial institutions. In fact, only about 25 percent of sub-prime loans were made by institutions covered by CRA.  CRA was passed in 1977.  The explosive growth in subprime lending occurred more than two decades later, nearly doubling from 2001-2006 alone.  No major changes to CRA were enacted during this time.  CRA does not mandate banks to make only home loans. Banks are encouraged to examine credit needs and lend appropriately based on these needs (for small business, home, and other types of loans).  CRA penalizes banks for reckless, irresponsible and otherwise predatory lending.

Myth: Rapid growth of subprime loans was a direct response to financial institutions efforts to expand homeownership for low and moderate and minority households.

Facts:
Between 1998-2006 over half of subprime mortgage originations were for refinancing.  In that same time, less than 10% of subprime mortgage originations went to first time homebuyers.   Significant gains in homeownership occurred in the 1990s when prime lending was offered to low and moderate income and minority borrowers.

Myth: Federal banking agencies encouraged banks to engage in risky lending practices. In particular, a 1992 Boston Federal Reserve Bank publication, Closing the Credit Gap: A Guide to Equal Opportunity Lending, provided unsound advice to banks.

Facts:
Federal Reserve Guidance: Lack of credit history should not be seen as a negative factor for potential homebuyers. Justification: Willingness to pay debt promptly can be determined through alternative sources of information including timely rent, utility bills, and other scheduled payments. Foreclosure Reality: Foreclosures are not a result of alternative credit scoring, but rather the product of excessive interest rates and unearned fees making loans unaffordable. Federal Reserve Guidance: Valid income sources may include social security, second jobs, and other sources. Justification: Many low to moderate-income households have varying sources but consistent or rising levels income throughout the year. Foreclosure Reality: Subprime loans are not failing as a result of the use of alternative sources of income. Rather, problematic subprime loans are characterized by a lack of income verification, not source of income.

In exchange, the company plans to receive tax credits equal to 80 percent of the contribution under a deal that Hill District residents, city officials and the Penguins struck in August to ensure the impoverished neighborhood gets new housing, businesses and jobs when a $290 million hockey arena opens in 2010 on Centre Avenue.  Complete article available here.

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults — the very misfortune that touched off the credit crisis last year.

The result of homeowners being “under water” is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home’s value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.  Read Wall Street Journal’s complete article here.