Worth to read :Savings and loan crisis

What was the Savings and Loans Crisis?:

The savings and loan crisis of the 1980s and 1990s (commonly referred to as the S&L crisis) was the failure of 747 savings and loan associations (S&Ls) in the United States. The ultimate cost of the crisis is estimated to have totaled around $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government—that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts[1]—which contributed to the large budget deficits of the early 1990s.

Empire Savings in Texas revealed land flips and other criminal activities. Half of the failed S&L's were from Texas, pushing that state into recession. As bad land investments were auctioned off, real estate prices collapsed, office vacancy rose to 30%, and crude oil prices fell 50%.

Ohio and State S&L failures cost the state-run deposit insurance funds at least $185 million, thus destroying the idea of state-run insurance funds. The FSLIC was bankrupted, to the cost of $20 billion.


Five U.S. Senators, known as the Keating Five, were investigated by the Senate Ethics Committee for improper conduct. They had accepted $1.5 million in campaign contributions from Charles Keating, head of the Lincoln Savings and Loan Association. They had also put pressure on the Federal Home Loan Banking Board, who was investigating possible criminal activities at Lincoln.

What Caused the Savings and Loans Crisis?:
Savings and Loans were specialized banks that used low-interest, but Federally-insured, deposits in savings accounts to fund mortgages. In the 1980's, the popularity of money market accounts reduced the attractiveness of savings accounts, so the banks asked Congress to remove restrictions. In 1982, the Garn-St. Germain Depository Institutions Act was passed, which allowed S&L's to raise interest rates on deposits, make commercial and consumer loans, and removed restrictions on loan-to-value ratios. At the same time, the Federal Home Loan Bank Board regulatory staff was reduced thanks to budget cuts.
In an attempt to raise capital, banks invested in speculative real estate and commercial loans. Between 1982 and 1985, these assets increased 56%. In Texas, 40 S&L's tripled in size, some growing 100% each year.
By 1983, 35% of the country's S&L's weren't profitable, and 9% were technically bankrupt. As banks went under, the state and Federal insurance began to run out of the money needed to refund depositors.However, S&L's kept remained open, making bad loans, and the losses kept mounting.

By 1989, Congress and the president knew they needed to bail out the industry. agreed on a taxpayer-financed bailout measure known as the FIRREA provided $50 billion to close failed banks and stop further losses. It set up a new government agency called the Resolution Trust Corporation (RTC) to resell Savings and Loan assets, and use the proceeds to pay back depositors. FIRREA also changed Savings and Loan regulations to help prevent further poor investments and fraud.


How Much Did the Savings and Loans Crisis Cost?:
Between 1986-1995, over 1,000 banks with total assets of over $500 billion failed. By 1999, the Crisis cost $153 billion, with taxpayers footing the bill for $124 billion, and the S&L industry paying the rest. Read More!

Hot stuff: Bank of America to acquire Countrywide

Associated Press (AP)
CHARLOTTE, N.C. - Bank of America said Friday it will buy Countrywide Financial for $4.1 billion in stock, a deal that rescues the country’s biggest mortgage lender and expands the financial services empire of the nation’s largest consumer bank.

The acquisition will make Charlotte-based Bank of America Corp. the nation’s biggest mortgage lender and loan servicer.

Bank of America said it initially plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009.
The transaction represents a 7.5 percent discount to where Countrywide shares ended Thursday after they soared on news that a rescue plan was in the works. It also effectively leaves Bank of America with a big loss on its $2 billion August investment in Countrywide Financial Corp. during the height of the summer’s global credit crisis.

An aggressive dealmaker who has already snapped up behemoths FleetBoston Financial and MBNA, Bank of America chief executive Ken Lewis this time isn’t buying a financial winner. Delinquencies and loans in pending foreclosure are rising in Countrywide’s loan portfolio, and Lewis said Friday “there are near-term challenges” in the nation’s housing market.

But Countrywide’s troubles have allowed Lewis to sweep in and add a major business line to his supermarket of financial products on the cheap.

“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Lewis said in a statement.

It also places Lewis in the position of a market savior. By buying Countrywide, he’s keeping the industry and regulators from the messy task of figuring out who would take on the responsibility of collecting payments for the 9 million U.S. home loans serviced by the Calabasas, Calif.-based lender. Lewis said Friday there was no government support for Countrywide’s loan portfolio.

"There's still plenty of risk involved," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. “He’s brave to do it. But I think that it’s very likely down the road to be profitable, maybe not immediately, but long-term.”

There was no immediate word on job cuts, but analysts said they expect some among the ranks of Countrywide’s 15,000 employees. Lewis said he would like Countrywide chairman and chief executive Angelo R. Mozilo to stay with the combined companies until the deal is done.

"Angelo has told me that he will do anything that we want him to do,” Lewis said. “I would guess that he’ll want to go have some fun. I will talk with him next week about his personal desires. Many of the senior people will have big operating roles in this company."

Shareholders of Countrywide will receive 0.1822 of a share of Bank of America stock in exchange for each share of Countrywide. The deal is expected to close in the third quarter and to be neutral to Bank of America earnings per share in 2008 and lift earnings per share in 2009, excluding buyout and restructuring costs.

Bank of America expects $670 million in after-tax cost savings in the transaction, or 11 percent of the expense base of the two companies’ mortgage operations.

The agreement has been approved by both companies’ boards and is subject to regulatory and Countrywide’s shareholders approval.

Shares in Countrywide hit record lows in recent days on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans — those made to borrowers with weak credit.

Countrywide shares plummeted more than 13 percent, or $1.04, to $6.71 at the open of trading Friday. Bank of America shares fell 19 cents to $39.11.

Countrywide shares have fallen 57 percent since Bank of America made its $2 billion deal in August at $18 per share. That purchase of preferred stock was convertible into a common shares of Countrywide at $18 per share, for roughly a 16 percent stake in the company.
Along with the $2 billion investment from Bank of America, Countrywide was forced to draw on an $11.5 billion line of credit to steady itself in August. It also tightened its credit guidelines and stopped selling some types of adjustable rate loans. But analysts said it wasn’t enough, with one noting this week that Countrywide needed an infusion of $4 billion in capital within the next two weeks to save itself.

Lewis’ bank holds $1.5 trillion in assets and is the nation’s largest bank by market capitalization.

“Their balance sheet can take a shock much better than Countrywide,” said CreditSights senior analyst David Hendler. "When you take the shocks at Countrywide, they have a big, busting consequence that’s negative." Read More!

Worth to read : Countrywide mortgage rates

A mortgage loan is a loan secured by real property through the use of a mortgage (a legal instrument). However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.

People these days are very interested in the countrywidemortgage loans because these loans come with security for its consumers. HereFederal Reserve Bank acts as the central bank for countrywide mortgage rates ofthe United States. It was created in 1913, and countrywide mortgage rate of theFederal Reserve sets monetary and financial policies as well. Now let me try tobring countrywide mortgage rate more closely. Every bank in the United Statesmust hold a certain percentage of its monetary assets. To say in another waythe bank is forced to countrywide mortgage to maintain a savings account.

A countrywide mortgage loan will also give us an option todefer payment for our home we already have. Parties in this mortgage loans arelender who lends money to the consumer, and the debtor who is consumer itself.Other\'s like legal advisor, broker or financial advisor play a vital role, butthey are not deemed to be part of this whole process. Like any other loan thereare different mortgage loans available, say for example interest only loans,interest and capital loans, no interest and no capital loans like equityrelease mortgage loans etc.

The advantage with countrywide mortgage loan is thatmortgage interest rate in countrywide mortgage rate is tax deductible. It uses"80-10-10" loan: it means this involves two loans and a 10 percentdown payment. As much as 90 percent countrywide mortgage rates loan is financedwith a first mortgage equal to 80 percent of countrywide mortgage rate saleprice, countrywide mortgage rate and a countrywide mortgage second mortgage forthe remaining 10 percent of the sale price. Here we must note that the secondmortgage has a higher interest rate but when it comes to countrywide mortgagerates it applies to only 10 percent of the total loan, leading to make themonthly payments on recountrywide mortgage rate the two mortgages are stillvery low compared to other loans.

To know in detail let\'s see how it works. As said accordingto the "80-10-10" plan, the 10 percent down payment countrywidemortgage on a $100,000 house countrywide mortgage rate is $10,000. The firstmortgage is $80,000 at 7.50 percent, which comes to a monthly payment ofcountrywide mortgage at $559. The second mortgage for $10,000 has a 9.50percent interest rate, making a monthly payment of $84. Total countrywidemortgage rate payments of the two loans: $643. With a $10,000 down payment, onemortgage of $90,000 at 7.50 percent countrywide mortgage has a monthlycountrywide mortgage rates payment of $629, plus per month installment of$31.45, making a total payment of $660.45. So we can find why countrywidemortgage rates are better compared to other loans available in the market.

Most vital aspect in mortgage loans is the mortgage rate,which is the rate of interest consumer has to pay along with the capital. Soaccording to the rate of mortgage loan, mortgages will be classified as fixedrate mortgages and adjustable rate mortgages. It\'s for the consumer to decidewhich rate he or she has to go for, and it all depends on his or her ownfinancial requirements and situation. Vital aspects we need to consider are howmuch we need to borrow, prices ranges and are there any tax advantages that aregoing to come with mortgage loans.

As in any other loan process, mortgage loan also requiressubmission of an application and documentation about our credit history and ourmonthly income; check list of the documents and credentials by the underwriter,and granting of the mortgage. If we have a good credit history it proves veryhandy for us to acquire mortgage loans. Lenders will always charge consumersfor lending mortgage money like entry and exit fees, administration fees andlenders mortgage insurance as well.
We must also note that some lenders may reduce or suspendour payments for a short time, and mortgage debt elimination shows you thatwhen we resume regular payments again the recountrywide mortgage rate we willonly have to pay an small countrywide mortgage additional amount toward thepast countrywide mortgage wholesale total loan. Though other lenders may agreeto change the terms of the mortgage by extending the repayment periodcountrywide mortgage happens to reduce the monthly debt as well.

Mortgage loans are tedious once but they are not same thesedays. They are all pretty hassle free with all lenders having all theinformation in their web sites which enables us to contact them very easily,discuss our mortgage options, we can also apply online, and last but not theleast we can also compare other mortgage companies and their plans easily. These web sites provide easy to use mortgage calculators providing much neededinformation, including payments to be made each month and the tax advantages,with the single click of a mouse. Every mortgage company has its own financialadvisors and we can make use of them for suggestions online or over phone aswell. But all said and done its up to us to find from our friends andcolleagues whether particular companies credentials are good enough or not. Solast but not the least taking advantages of a countrywide mortgage rates willalways be an important decision in the right direction in any persons life. Read More!