WSJ: An article on a community loan activist and the Community Reinvestment Act

A Wall Street Journal article details the struggles of Matthew Lee, who is still fighting for the Community Reinvestment Act and to make banks stop predatory lending. Despite what some conservatives say, loans made under the CRA did not default at higher rates than normal. However, predatory, high-interest loans made outside the CRA in low-income or under-banked communities did.


One of the last times I saw Matthew Lee was in April 2004. Mr. Lee had taken his fight to bring credit to the underserved to a special meeting of the Federal Reserve that was considering J.P. Morgan Chase & Co.'s acquisition of Bank One Corp.

A modest and somewhat rumpled attorney, Mr. Lee chastised the $60 billion deal, arguing that J.P. Morgan had failed to provide enough credit to urban areas. He argued that the bank and its mega bank rivals financed predatory check-cashing stores across the country.

Mr. Lee won, sort of. J.P. Morgan pledged $800 billion in new credit over 10 years and promised to review its support of predatory lenders. The merger was approved.

After the meeting, Rev. Jesse Jackson called Mr. Lee, 44 years old, a prime mover in the modern civil-rights movement: the fight for access to capital. "He's an enemy of predatory exploitation," Rev. Jackson said.

It's six years later, and to say a lot has changed is like saying the housing market has hit a hiccup. The Community Reinvestment Act, the banking law Mr. Lee sought to enforce and build on, has come under fire for allegedly fueling the financial crisis through a wave of defaults. The act requires banks to offer loans to underserved areas, mainly urban, poorer neighborhoods.

But if you think the backlash against community lending and the banking law has changed Mr. Lee's perspective you'd be wrong. Through his Bronx-based organization Inner City Press/Fair Finance Watch, Mr. Lee continues to challenge the banking industry for ignoring poorer neighborhoods and its support of predatory lending practices.

"Persistence is the key," said Mr. Lee. "There are still groups interested in the intersection on consumer protection and Wall Street sleaze."

If anything, the attacks have made Mr. Lee more resilient in challenging banks to end its support—directly and indirectly—of predatory lending, an effort that includes subprime loans.

The Impact of CRA Loans
Critics argue that Community Reinvestment Act loans fueled the mortgage bubble by offering credit to those who would have otherwise been turned down. A 2008 report by the Competitive Enterprise Institute concluded that banks that conform to the act are more likely to be less sound and that CRA loans create higher costs for borrowers.

But the evidence is scant that the legislation played a role in the recent crisis. More than 80% of subprime loans were made by institutions or big bank subsidiaries that weren't subject to CRA, according to 2008 testimony by Michael Barr, a professor at the University of Michigan. And a 2008 study by Federal Reserve found no correlation between the financial crisis and CRA lending.

Federal Reserve Chairman Ben Bernanke said in 2007 that CRA loans "usually did not involve disproportionately higher levels of default."

"I understand that your average 'blame the liberals' may not understand that," Mr. Lee said. "But when you actually look into it, you find the real sleazeballs were companies like Ameriquest, Countrywide and New Century and they didn't make a single loan for CRA because they weren't covered by CRA."

The Big Bank Connection
That doesn't mean banks bound by CRA didn't participate in risky lending.

Big banks, such as Citigroup Inc., are just holding companies. Their subsidiaries had different missions. Citibank generally made prime loans and was covered by the law. CitiFinancial didn't have a CRA requirement, but it underwrote more subprime loans. And Citigroup's investment bank, packaged and sold risky loans from many sources to investors.

"There's a good argument that if CRA would have been enforced, people would not have been fleeced on their loans," Mr. Lee said. "And regulators, had they not enforced CRA so narrowly, that when you look at Citigroup underwriting Ameriquest loans, they [the regulators] would have said 'are you kidding?'"

Citigroup declined to comment.

Part of the dispute may have to do with what the banking law actually does. The act does not require banks to make loans to people without credit or considered risky. It only requires that it provide credit in areas where there's a lack of bank finance. CRA loans generally don't carry higher-than-market interest rates.

Such misunderstanding is why Mr. Lee continues to push banks in a climate where inner city lending—fairly or not—is under attack. Because the banking law challenges can only be made when a bank merger is announced and few mergers are being made, Mr. Lee is stockpiling information.

He's poring through annual mortgage data supplied by banks to see what markets they've abandoned. He's gathering information about J.P. Morgan's and Bank of America Corp.'s ties to World Acceptance, a small-loan, consumer finance company that makes subprime and controversial loans called 78s.

A J.P Morgan spokesperson declined to comment.

Fair Finance Watch also is targeting Wal-Mart Stores Inc. for its in-store "money centers" that charge for check cashing and same-day bill payment.

So, the fight goes on. But there is one part of Mr. Lee's job that has changed. He said he's now fielding calls from distressed homeowners—not necessarily CRA beneficiaries—who are wrestling banks looking to foreclose.

Said Mr. Lee, "I've actually had to learn more about workouts than I ever really wanted to know."

Change.org: Feeding a homeless person might cost you $300 in Miami

Jacqueline Dowd reports for Change.org that doing the good deed of giving a homeless person some food might result in a $300 fine in Miami. Several other cities are adopting these ham-handed fines.

Seriously, what would Jesus say about this?

Citibank pushes alternative to foreclosures

Morningstar has an article from Dow Jones about Citi pushing an alternative to foreclosures. The bank is making it much easier for homeowners who are in default to seek a deed in lieu of foreclosure arrangement.


Mortgage lenders are trying to arrange smoother departures for distressed homeowners who can't be saved by loan modifications--and discourage them from trashing the homes on their way out.
CitiMortgage, a unit of Citigroup Inc. (C), announced Wednesday a pilot project that will let some delinquent borrowers remain in their homes without making mortgage payments for six months if they voluntarily transfer ownership to the bank.

Over the past two years, millions of foreclosures have been delayed by state and federal programs requiring lenders to try to keep borrowers in their homes by easing their monthly payments. But the moment of truth is approaching for hundreds of thousands of households that sought help under the Obama administration's Home Affordable Modification Program, or HAMP, launched a year ago, as well as borrowers who have sought help through other programs.

"We are concerned that if there is a foreclosure glut at some point in the cycle it would have to have a negative impact on house prices," and Citi's pilot program should help prevent a build-up in foreclosed homes, said Sanjiv Das, the chief executive of CitiMortgage in an interview.

As of Dec. 31, about 900,000 borrowers had been given trial modifications under HAMP. Many have been unable to document that they have enough income to qualify for that program, however. Some soon will run out of options for keeping their homes.

The CitiMortgage pilot program provides incentives for more borrowers to use a procedure known as a "deed in lieu of foreclosure," in which the borrower voluntarily transfers ownership of the home to the lender, which then cancels the mortgage debt. Aside from letting such people stay in the homes for six months, CitiMortgage says it will give them at least $1,000 to cover relocation costs, an incentive sometimes dubbed "cash for keys."

Mr. Das said, "Something formally needs to be done in addition to the modifications. We are in a different stage of the housing cycle. Restructuring mortgage payments was part one of the cycle, making sure that foreclosure glut doesn't hit the industry is part two of the cycle. Citi is trying to stay ahead of it."

The pilot program is available for certain people whose mortgages are owned by CitiMortgage in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. The bank should benefit by avoiding legal costs and reducing the time homes are left vacant and exposed to vandalism. Participants will be required to "maintain the property in its current condition," the bank said. It plans to expand the program if the pilot is successful.

Mr. Das said the bank had talked with the Treasury Department "about a coordinated, collective action" for customers that don't qualify for HAMP. "We believe if all banks take action collectively similar to this [Citi program], the impact on neighborhoods and on the late stage delinquencies that are building up would be a very good thing."

The program also reflects a realization that some people have the wrong house, rather than the wrong mortgage, and want to get out, Mr. Das said.

Another alternative to foreclosure is a short sale, in which lenders agree to allow a distressed borrower to sell the home for less than the loan balance due. Though the lender takes a loss, it can be much smaller than the hit that would arise from foreclosing and then maintaining the house while waiting for it to be sold.

But "often times in a short sale [the homeowner gets] a ridiculous offer" from a potential buyer that Citi wouldn't accept, Mr. Das said. In those cases, foreclosure or deed in lieu are the only options.

The Greater Las Vegas Association of Realtors says about 21% of home resales in January were short sales, up from 19% a month earlier. Potential buyers of homes in short-sale situations have long complained that banks often take months to respond to offers. But banks, prodded by the U.S. Treasury, have been trying to streamline the short-sale process. CitiMortgage last year set up a dedicated team charged with responding faster. J.P. Morgan Chase & Co. (JPM) also has beefed up its short-sale team.

Bank of America Corp. (BAC) said it has a pilot program that streamlines short sales. The bank said it would be able to approve sales within two weeks of receiving offers under that program. For homeowners who don't find a buyer within 120 days, Bank of America will offer a deed in lieu. Bank of America said borrowers will have cash incentives for completing this program.

In addition, the government-backed mortgage investors Fannie Mae (FNM) and Freddie Mac (FRE) both have programs that allow people who give up ownership of their homes to remain in them as renters.

One big problem is that many borrowers no longer have equity in their homes and thus may be tempted to abandon them. At the end of 2009, 21% of households with mortgages on single-family homes owed more than the current value of their homes, a predicament known as being under water, according to a new estimate from Zillow.com, a real estate data provider.

Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP, estimates 7.1 million of the 7.9 million households behind on their mortgage payments will lose their homes to foreclosure if nothing is done to improve current loan-modification programs. She believes banks should put much more emphasis on loan modifications that reduce the principal for people who are deeply under water.

-By James R. Hagerty, The Wall Street Journal; 412-261-1817; bob.hagerty@ wsj.com; and Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

Would Jesus Default on His Mortgage Part 2

Richard Thaler, a behavioral economist and a professor at the University of Chicago Booth School of Business, has an op-ed on strategic defaulting. He suggests that Congress pass a law requiring loans to be modified if home prices fall past a trigger point, but that the banks be allowed to share in the upside if (maybe even when) the house is later sold at a profit.

Eric Posner, a law professor, and Luigi Zingales, an economist, both from the University of Chicago, have made an interesting suggestion: Any homeowner whose mortgage is underwater and who lives in a ZIP code where home prices have fallen at least 20 percent should be eligible for a loan modification. The bank would be required to reduce the mortgage by the average price reduction of homes in the neighborhood. In return, it would get 50 percent of the average gain in neighborhood prices — if there is one — when the house is eventually sold.

Because their homes would no longer be underwater, many people would no longer have a reason to default. And they would be motivated to maintain their homes because, if they later sold for more than the average price increase, they would keep all the extra profit.

Banks are unlikely to endorse this if they think people will keep paying off their mortgages. But if a new wave of foreclosures begins, the banks, too, would be better off under this plan. Rather than getting only the house’s foreclosure value, they would also get part of the eventual upside when the owner voluntarily sold the house.

This plan, which would require Congressional action, would not cost the government anything. It may not be perfect, but something like it may be necessary to head off a tsunami of strategic defaults.

It's an innovative suggestion, which I like. I doubt the banks will deal right now, so the solution is for people to start strategically defaulting en masse. Face it, if it was the banks who were buying the houses and we who were lending them the money to do so, they would have strategically defaulted months ago.

As an aside, he cites evidence that the nonrecourse provisions in California and Arizona raised closing costs to the tune of about $800 for every $100,000 that people borrowed. In other words, mortgagees in nonrecourse states have already paid for the right to default and leave the lender no recourse to sue them for the balance. From a solely business perspective, they might as well go and exercise that option - it's as if they bought a put option in investing (a put option being the right to sell a security at a specified price).

WWJD: Would Jesus walk away from His mortgage?

In the middle of the financial crisis, Donald Trump coldly walked away from his contractual obligations on a real estate deal:

Guess who is complaining that condominiums in Donald Trump’s latest big project are ridiculously overpriced.

Donald Trump is.

But he isn’t cutting the prices. He says the banks won’t let him.

The project is the Trump International Hotel and Tower in Chicago, which is to be the second-tallest building in that city (after the Sears Tower). By Mr. Trump’s account, sales were going great until “the real estate market in Chicago suffered a severe downturn” and the bankers made it worse by “creating the current financial crisis.”

Those assertions are made in a fascinating lawsuit filed by Mr. Trump, the real estate developer, television personality and best-selling author, in an effort to avoid paying $40 million that he personally guaranteed on a construction loan that Deutsche Bank says is due and payable.

Rather than have to pay the $40 million, Mr. Trump thinks the bank should pay him $3 billion for undermining the project and damaging his reputation.

He points to a “force majeure” clause in the lending agreement that allows the borrower to delay completion of the building if construction is hampered by such things as riots, floods or strikes. That clause has a catch-all section covering “any other event or circumstance not within the reasonable control of the borrower,” and Mr. Trump figures that lets him out, even though construction is continuing.

“Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would,” he said in an interview. “A depression is not within the control of the borrower.”

He wants a state judge in the Queens borough of New York to order the bank to delay efforts to collect the loan until “a reasonable time” after the financial crisis ends.

Deutsche Bank thinks the idea that an economic downturn should free people from the obligation to pay their debts is laughable.

Mr. Trump, it may be noted, does not think remorseful condominium buyers are in a similar position. When I asked him if he would let them walk away from contracts to buy apartments at predepression prices, he said he would not. “They don’t have a force majeure clause,” he said.

The suit, and a parallel one by Deutsche Bank seeking the money, provide a glimpse into both how Mr. Trump does business and into the way the real estate loan market was operating in 2005, when the loan was made.

Christians teach that people should generally act with fidelity and honesty in their contracts. But what if you're in a contract with a sociopath?

Corporations are legally required to be responsible only to their shareholders. They are immortal and any legal penalties they suffer in response to misdeeds are typically small in comparison to their business. In other words, they exhibit many characteristics of sociopaths. See this ICD-10 description of the antisocial personality disorder:

(a) callous unconcern for the feelings of others;

(b) gross and persistent attitude of irresponsibility and disregard for social norms, rules and obligations;

(c) incapacity to maintain enduring relationships, though having no difficulty in establishing them;

(d) very low tolerance to frustration and a low threshold for discharge of aggression, including violence;

(e) incapacity to experience guilt and to profit from experience, particularly punishment;

(f) marked proneness to blame others, or to offer plausible rationalizations, for the behaviour that has brought the patient into conflict with society.

Donald Trump is a particularly slimy example of a business leader, but his behavior is not qualitatively different from corporations. For example, Morgan Stanley bought five office buildings in San Francisco at the peak of the housing bubble. When their value plunged in the housing crisis, Morgan Stanley turned the properties over to Blackstone, the private equity firm that lent them the money. Morgan Stanley admitted it could afford to make the payments. Charitably, they could be said to have successfully negotiated a deed in lieu of foreclosure. Less charitably, they strategically defaulted - they could have afforded to pay but they walked away. Homeowners have been known to unilaterally mail in their keys to their lenders, a practice known as jingle mail, when they are upside down on their mortgages and can't pay, or they don't want to pay.

We are very judgmental about people who violate their loan contracts. Liz Pulliam Weston, one of my favorite personal finance columnists on MSN Money, describes a law professor who advised people to walk away if their financial situation dictated as "wrong, wrong, wrong". Walking away from our properties en masse would hurt our communities by driving down property values and increasing crime. It would also be an assault, she says, on our personal integrity - which is priceless.

And then, I read the article by the law professor in question, Brent White. The article, Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis, is available free from the Social Science Research Network, but you have to register. In a stunningly well-argued combination of law, economics and sociology, Professor White essentially argues that people who are severely underwater on their mortgages and choose not to default are fools. From the abstract:

This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to encourage homeowners to follow social and moral norms related to the honoring of financial obligations - and to ignore market and legal norms under which strategic default might be both viable and the wisest financial decision.

About 32% of mortgages are underwater across the country. In the 3 hardest hit metropolitan areas of Merded, El Centro and Modesto (all in California), 84-85% of mortgages are underwater. Nationally, 16% of homeowners were underwater by at least 20% of their home's value - in California and Nevada, these figures rise to 25% and 47% respectively. White gives a specific example of a hypothetical couple:

Consider, for example, Sam and Chris, a young professional couple with two small children, who stretched to buy their first home - an average 3 bedroom, 1380 square foot house in Salinas, California – for $585,000 in January of 2006.31 Sam and Chris had excellent credit and a solid income, and were thus able to qualify for a 30-year fixed interest loan with nothing down. At an interest rate of 6.5%, their total monthly payment is $4300,32 which is just under 31% of their gross monthly income, and within the payment-to-income ratio considered “affordable” by most lenders. However, after paying for taxes, health insurance, student loans, childcare, automobiles, food, and other necessities, Sam and Chris do well to break even each month. At the time they bought their home, they were not overly concerned about this - as they saw their mortgage payment itself as an investment in their own and their children’s futures.

Unfortunately for Sam and Chris, the housing market began to collapse in 2007. Though they still owe about $560,000 on their home,33 it is now only worth $187,000.34 A similar house around the corner from Sam and Chris recently listed for $179,000, which, with a modest 5% down, would translate to a total monthly payment of less than $1200 per month – as compared to the $4300 that they currently pay. They could rent a similar house in the neighborhood for about $1000.

Assuming they intend to stay in their home ten years, Sam and Chris would save approximately $340,000 by walking away, including a monthly savings of at least $1700 on rent verses mortgage payments, even after factoring in the mortgage interest tax reduction. The financial gain for Sam and Chris from walking away would be even more substantial if they took their monthly savings and put it into an investment account. If they stay in their home on the other hand, it will take Sam and Chris over 60 years just to recover their equity – assuming, of course, that they live that long, the market in Salinas has indeed hit bottom, and their home appreciates at the historical appreciation rate of 3.5%.

And yet, only 3% of all mortgage owners strategically default. These folks represent about one quarter of the total number of people who default - most people really can't pay because they've lost their job, divorced or otherwise run into financial difficulty. While strategic default hurts our communities in the ways that Pulliam Weston said, foolhardy staying (my term) can hurt our families by making us unprepared to meet other financial emergencies - like being hospitalized.

White says that because mortgage lenders have superior understanding of mortgage instruments and valuation of real estate compared to consumers, they should bear a greater share of the blame than consumers. They had the means to protect themselves, by using sound underwriting standards - but they threw these out the window. If consumers are to be held to societal norms regarding staying in their mortgages, then mortgage lenders need to uphold societal norms as well. They need to work with consumers who are in financial difficulty to lower the principal amounts on their mortgages. If they merely reduce the monthly payments or allow a consumer to suspend payments for a limited time, the consumers don't amortize their principal as fast (or at all), and they owe more in the long run. In reality, lenders have generally refused to negotiate lower principal amounts. Instead, they have stalled consumers and "lost" their paperwork.

More than that, there has been immense social pressure on people not to default - sociologists call this sort of thing social control:

The worst criticism has been reserved, however, for those who would walk away from mortgages that they can afford. Typical of such criticism is that of Secretary of the Treasury Henry Paulson, who declared in a televised speech: “And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.”

Paulson’s comment is mild, however, compared to the media invective toward those who strategically walk from their mortgages. Such individuals are portrayed as obscene, offensive, and unethical, and likened to deadbeat dads who walk out on their children, or those who would have “given up” and just handed over Europe to the Nazis.

There is similarly no shortage of moralizing about the responsibilities of mortgagors. Typical media messages include: "we need a culture of responsible consumers and homeowners;" “one should always honor financial obligations;125 “when you enter into a contract that should mean something;” “there was a time when people felt really bad about not paying back debt,” and, “money is more than a matter of numbers. There are ethics involved. Most people feel, or should feel, an obligation to pay their debts.” Even sympathy for those who default because of predatory lending is frequently lacking: “We’ve read too many sob stories in the press about ‘predatory lending’ — a rare, misunderstood, and vastly exaggerated phenomenon. It’s time for the poster children for irresponsibility to get some face time.”

As a result, homeowners have been forced by businesses, which are backed up by social control, to bear the brunt of the damage from falling home values. If they were Morgan Stanley, they could have forced their lenders into some sort of agreement. But homeowners don't have the bargaining power of Morgan Stanley.

In theology, a covenant is similar to a contract in the business sense that two parties exchange promises. However, if one party violates their promise, the other party is still bound to their side of the agreement. For example, Christians believe that God's love for humankind is unconditional, regardless of how badly we mess up. Pulliam Weston and society are asking people to treat our loans as covenants, but the fact is that the business world treats loans as simple contracts. White calls this "norm asymmetry". I call it an invitation to be exploited - you cannot make a covenant with an amoral entity. Indeed, in theology, covenants are only made between deities and people, and sometimes people and other people (e.g. marriage).

And so, we come to the question of what Jesus would say to underwater homeowners. It's not possible to say for sure - they didn't do mortgages or have corporations in ancient Israel, so Jesus never addressed this subject directly. However, I feel confident in saying that your mortgage lender is treating your mortgage as a simple business arrangement, and people should do the same, especially if they are in financial distress. In a business arrangement, you both agree to do something and there are specified penalties for noncompliance by either side. You simply have to be prepared to face the penalties. For people who walk away, the damage to your credit scores will be significant but not insurmountable. In some states (like California), the lender is legally prevented from suing you to collect the owed amount, so your cost of nonperformance is lower. Even if you are in most of the states that allow recourse, it is often not worth the lender's while to come after you.

If more people strategically default, this might force lenders to voluntarily modify more loans - which is what they should be doing in the first place. It might also enable the government to step in and give bankruptcy judges the ability to reduce principal on primary residences - the banks lobbied against this in the past. It is possible to get amoral entities to behave in a socially responsible fashion, but you have to make a significant threat to their profitability and/or existence to do so. If businesses want consumers to treat their loans as covenants, then businesses have a reciprocal obligation to do the same. But if businesses are treating loans as mere contracts, then consumers may do the same. They should consider their own finances, and they should take into consideration the effects on their neighborhoods. But they have the right - indeed, the responsibility - not to be taken advantage of, and they have the right to press government to exert more pressure on lenders to modify loans.

USA Today: Cold snap "horrifying" for the homeless

Wendy Koch writes for USA Today.

Homeless shelters are swamped as an extended cold snap in the eastern half of the country raises alarms about people living on the streets or in unheated buildings.

The problem is acute in New Orleans, where thousands displaced since Hurricane Katrina live in abandoned houses.

"It's a pretty horrifying situation," says Martha Kegel of UNITY of Greater New Orleans, a network of agencies helping the homeless. She says a team is looking for people who need shelter, but many are hidden. "There's no way to get to all of them," she says.

Overnight temperatures will fall into the mid-20s later this week, The Weather Channel forecasts.

"I have a sickening feeling we're going to lose people to exposure," Kegel says.

Other cities have already seen that.

In Nashville, where the temperature fell to 12 degrees Monday night, four people died outside. The Tennessean reported that one was an 81-year-old man with Alzheimer's who wandered outside in his bathrobe.

"We're trying to prevent hypothermia," especially among people who drink alcohol and might not notice the cold, says Don Worrell, president of the Nashville Rescue Mission, a homeless shelter that has 747 beds and is now over capacity. When the temperature drops below 36 degrees, his "cold patrol" goes out to find the homeless and bring them in.

Even in what is normally sunny Florida, homeless shelters are gearing up as temperatures dip below 40 degrees.

"We're putting people on mats," says Robby Cisrow of Broward Outreach Center in Hollywood, Fla., a homeless shelter that normally houses 15 to 20 people but has averaged 40 this week. It's prepared to take 70.

The deep freeze in much of the South, unaccustomed to such cold, will ease slightly but plunge again by week's end, The Weather Channel says.

People in most cities can phone 211 for help if they lack shelter or their heat has been cut off for unpaid bills.

Birmingham, Ala., opened a temporary "warming center" Tuesday in the Boutwell Municipal Auditorium for anyone needing shelter. It will have cots, blankets and warm drinks and will stay open from 6 p.m. to 7 a.m. through Sunday.

In Atlanta, the Gateway Center shelter downtown has more than 100 women and children sleeping on mats in an overflow area.

Protip Biswas of the United Way Regional Commission on Homelessness says outreach workers will push harder to get the homeless indoors if temperatures dip into the teens.

Still, he wonders, "Are we doing enough?"

How banks are making foreclosures worse

Businessweek has a long article on how banks are making foreclosures worse.


The bad mortgages that got the current financial crisis started have produced a terrifying wave of home foreclosures. Unless the foreclosure surge eases, even the most extravagant federal stimulus spending won't spur an economic recovery.

The Obama Administration is expected within the next few weeks to announce an initiative of $50 billion or more to help strapped homeowners. But with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years, the Obama plan—whatever its details—can't possibly do the job by itself. Lenders and investors will have to acknowledge huge losses and figure out how to keep recession-wracked borrowers making at least some monthly payments.

So far the industry hasn't shown that kind of foresight. One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges.

The industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell BusinessWeek . "We were like the Dutch boy with his finger in the dike," says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. Some admit that, in retrospect, their clients, which include Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM), would have been better off had they agreed two years ago to address foreclosures systematically rather than pin their hopes on an unlikely housing rebound.

In public, financial institutions insist they've done their best to prevent foreclosures. Most argue that giving bankruptcy courts increased clout, known as cramdown authority, would reward irresponsible borrowers and result in higher borrowing costs. "What we're trying to do now is target the bill to make it as narrow as possible," says Scott Talbott, a lobbyist for the Financial Services Roundtable. On the defensive, the industry nevertheless benefits from one strain of popular opinion that home buyers who took on risky mortgages—even if the industry pushed those loans—don't deserve to be rescued.
AN INDUSTRY IN DENIAL

However the skirmish ends, the industry's contention that it has done as much as possible to limit foreclosures seems hollow. Some statistics it cites appear to be exaggerated. Even pro-industry figures such as Steven C. Preston, a Republican businessman who headed the Housing & Urban Development Dept. late in the Bush Administration, concede that many lenders have dragged their heels. "The industry still has not stepped up to the volume of the problem," Preston says. One program, Hope for Homeowners—which Bush officials and banks promised last fall would shield 400,000 families from foreclosure—has so far produced only 25 refinanced loans.

Meanwhile, an already glutted market sinks beneath the weight of more foreclosed homes. Borrowers whose equity has evaporated have nothing to tap into if the recession costs them their jobs. Some lawmakers and regulators are calling for a foreclosure moratorium. "People are falling through the cracks," Preston says. "That's bad for communities, bad for the individuals losing their homes, and bad for investors."

In early 2007, as overextended borrowers began to default on too-good-to-be-true subprime mortgages, housing experts sounded an alarm heard throughout Washington. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, wanted to push a bill requiring banks to modify loans whose enticingly low "teaser" interest rates soon give way to tougher terms. But he knew that with Republicans strongly opposed, he lacked the muscle, according to Senate aides. So Dodd did what politicians often do. He convened a talkfest: the Homeownership Preservation Summit.

A who's who of banking executives gathered on Apr. 18, 2007, behind closed doors in an ornate hearing room in the marble-faced Dirksen Senate Office Building. Dodd told them they needed to get out in front of the foreclosure fiasco by adjusting loan terms so borrowers would continue to make some payments, rather than stopping altogether. Foreclosure proceedings typically cost banks about 50% of a property's value. That's assuming the home can be resold—not a certainty when empty houses multiply in a neighborhood. "What are you doing?" Dodd asked the executives. "What do you need me to do to help you modify loans?"

Some from the industry denied a foreclosure problem existed, including Sandor E. Samuels, at the time chief legal officer of subprime giant Countrywide Financial. They vowed to continue selling loans with enticing introductory rates as well as those requiring minimal evidence of borrowers' income. "We are going to keep making these loans until the last second they are legal," Samuels later told a fellow participant.

On May 2, 2007, Dodd's office issued a "Statement of Principles" stemming from the summit. It outlined seven vaguely worded industry aspirations, such as making "early contact" with strapped borrowers and offering modifications that could include lowering loan balances. The principles had no effect, some summit participants now concede.

Much of Dodd's attention shifted to his campaign for the Democratic Presidential nomination. Senate Banking Committee spokeswoman Kate Szostak says Dodd aggressively pursued the foreclosure issue, but "both the industry and the Bush Administration refused to heed his warnings." The lawmaker accepted $5.9 million in contributions from the financial-services industry in 2007 and 2008.

Asked about his role at the summit, Samuels confirmed in an e-mail that he "did speak—formally and informally—about the performance" of subprime loans. But he declined to elaborate. He now works as a top in-house lawyer for Bank of America, which acquired Countrywide in July 2008.

A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs (GS) in January. A desire to postpone this devastating situation helps explain lenders' intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns.

By mid-2007, Bush Administration officials were deeply worried about the financial industry's unwillingness to confront the growing catastrophe. Even banking lobbyists say they realized that their clients had lapsed into denial. The K Street representatives agreed that Treasury Secretary Henry Paulson needed to step in, says Erick R. Gustafson, then the chief lobbyist for the Mortgage Bankers Assn. "It was like an intervention," he says. "We had to get Treasury involved to get the banks to give us information."

That summer, Paulson, a former CEO of Goldman Sachs, summoned industry executives to the Cash Room, one of Treasury's most elegant venues. There, beneath replica gaslight chandeliers, Neel T. Kashkari, a junior Goldman banker whom Paulson had brought to Treasury, urged industry leaders to move swiftly to keep more consumers from losing their homes. Bankers know how to adjust interest rates, extend loan durations, and, if necessary, lower principal, said Kashkari, who has temporarily remained in his post. A couple of months later, Paulson summoned the executives again, this time to his conference room. "We told them we need to get over the goal line," recalls a former top Treasury official. "Cajoling is a euphemism for what we did. We pounded them."

One product of the Treasury conclaves was the Hope Now Alliance, a government-endorsed private sector organization announced by Paulson on Oct. 10, 2007. Lenders promised to cooperate with nonprofit credit counselors who would help borrowers prevent defaults. Faith Schwartz, a former subprime mortgage executive, was put in charge.
WINDOW DRESSING?

The alliance got off to a shaky start. An early press release contended that there had been more foreclosures nationally than the Mortgage Bankers Assn. was conceding at the time. "We looked like the Keystone Kops," says an industry lobbyist. Soon it became apparent that the program was primarily a public-relations effort, the lobbyist says. "Hope Now is really just a vehicle for collecting and marketing information to the Treasury, people on the Hill, and the news media."

In a press release last Dec. 22, Hope Now said it had prevented 2.2 million foreclosures in 2008 by arranging for borrowers to catch up on delinquent payments and, in some cases, easing terms. But the data don't reveal how many borrowers are falling back into default because many modifications don't, in fact, reduce monthly payments. The alliance doesn't receive this information from banks, says Schwartz.

There's reason for skepticism. Federal banking regulators reported in December 2008 that fully 53% of consumers receiving loan modifications were again delinquent on their mortgages after six months. Alan M. White, a law professor at Valparaiso University, says the redefault rates are high because modifications often lead to higher rather than lower payments. An analysis White did of a sample of 21,219 largely subprime mortgages modified in November 2008 found that only 35% of the cases resulted in lower payments. In 18%, payments stayed the same; in the remaining 47%, they rose. The reason for this strange result: Lenders and loan servicers are tacking on missed payments, taxes, and big fees to borrowers' monthly bills.

Consider the case of Ocbaselassie Kelete, a 41-year-old immigrant from Eritrea who called Hope Now last fall. Kelete, a naturalized U.S. citizen, bought a $540,000 townhouse in Hayward, Calif., in November 2006 with no down payment and 100% financing from First Franklin Financial, a subprime unit of Merrill Lynch. At the time, he and his wife earned $108,000 a year from his two jobs, with a pharmacy and an office-cleaning service, and hers as a janitor. Kelete says First Franklin and his realtor convinced him that he could afford a pair of mortgages, one with a 7.5% initial rate that would rise after three years, and a second with a fixed 12% rate. His monthly payment would total $3,600.

"WORK WITH ME"

"The realtor said, 'Just make sacrifices for two years. Home prices will go up, and you can refinance at a lower rate,' " Kelete recalls. He regrets signing a mortgage he couldn't afford—a mistake many people made during the subprime craze. Home prices didn't go up. He lost his office-cleaning job. First Franklin modified his loans, but added on property taxes it had failed to collect earlier. Kelete's monthly bill rose to $3,900. In October 2008, he called Hope Now. A counselor set up a conference call with First Franklin. The lender's representative said Kelete should get another job or give up the house, the borrower says. Kelete responded that he'd already lost his second job cleaning offices and couldn't find another in a faltering California economy. "Why don't you work with me?" he asked First Franklin. The lender declined. The Hope Now counselor said there was nothing more to do. "Foreclosure is the only future I see," Kelete says. A spokesman for BofA, which acquired Merrill in December, declined to comment, citing the borrower's privacy. After BusinessWeek's inquiries, however, First Franklin contacted Kelete about lowering his monthly payments.

Hope Now's Schwartz acknowledges she is fighting an uphill battle. By her calculation, 45% of the borrowers her organization advises still end up in foreclosure. "If I seem frustrated," she says, "it's because we are dealing with nothing but an exploding problem." She has a full-time staff of four in Washington; 500 counselors participate in the industry-funded hotline. "You shouldn't take it lightly, what we have achieved," Schwartz says. She bristles at suggestions that the statistics she disseminates are misleading. "I print what I know," she says, noting that some of her bank members aren't forthcoming about loan modifications. "It's like herding and juggling cats."

By early 2008 it was obvious that Hope Now wasn't halting a significant percentage of foreclosures. Democrats in Congress began gathering ideas for a government-sponsored remedy. Many of those ideas came from the industry. Lobbyists and congressional aides referred to one concept as "the Credit Suisse plan." Another, "the Bank of America plan," would allow borrowers to refinance mortgages with loans guaranteed by the Federal Housing Administration. Representative Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, had solicited BofA's advice via an old Boston acquaintance, Anne Finucane, the bank's chief marketing executive and a politically active Democrat. He assigned several aides, including Michael M. Paese and Rick Delfin, to work out the details.

Francis Creighton, a Democratic former staff member on the Financial Services panel who had gone to work as a lobbyist for the Mortgage Bankers Assn., negotiated with Paese and Delfin. Creighton's Republican colleague Gustafson huddled with aides to such GOP lawmakers as Representative Spencer Bachus and Senator Richard Shelby, both of Alabama.

Before long, the anti-foreclosure provisions were being altered in ways the industry favored. Shelby, the ranking Republican on the Senate Banking Committee, along with other Republicans insisted on the pro-industry language in exchange for their support, aides say.

In the end, the program included stiff up-front and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property's value—all of which made it much less attractive to borrowers. Moreover, the banks' participation was made entirely voluntary; there was no way to pressure them to cooperate.

Congress approved Hope for Homeowners on July 26, 2008, as part of a larger measure imposing restrictions on the mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE). At the Mortgage Bankers Assn., lobbyists gathered in Gustafson's corner office to lift plastic cups of wine in celebration.

Those familiar with Hope for Homeowners anticipated that its fine print would discourage all but a few borrowers. "We knew it was likely to have limited appeal," says Preston, the former secretary of HUD, which oversees the FHA. George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans "useless" because of the onerous details.
BROKEN BILL

Shelby, for his part, never expected Hope for Homeowners to accomplish much, according to Republican Senate aides. He agreed to it to gain Dodd's support for greater regulation of Fannie and Freddie—and only when assured the program wouldn't drain tax dollars. "My consistent aim throughout this crisis has been to protect the American taxpayer," Shelby told BusinessWeek in a statement. He accepted $565,000 in contributions from the financial-services industry in 2007-2008.

Frank, whose industry contributions totaled $948,000 over the same period, says he became skeptical Hope for Homeowners could achieve its initial goal of helping 1 million people. But he expected much more progress than the mere 25 refinancings that have occurred so far, according to HUD. He blames Republicans and the industry for undercutting his legislation. "I didn't have the votes to do more," he says.

The Massachusetts liberal hasn't given up hope of repairing Hope for Homeowners. He is working on changes that would cut borrowers' up-front fees and provide bonus money for mortgage servicers that agree to participate in the voluntary program. Frank aides Paese and Delfin aren't assisting with the fixes: They have left their congressional staff positions for lobbying jobs with the Securities Industry & Financial Markets Assn. in Washington. They say they are observing the one-year federal ban on speaking with their former boss about business they did on the Hill.

In the first days of 2009 it appeared that progress might be possible on a different front. A slumping Citigroup came back to the Treasury Dept. for a second round of bailout money. Bowing to pressure from regulators, Citi broke ranks with its rivals and dropped its opposition to bankruptcy cramdown.

Senator Dick Durbin (D-Ill.), who since 2007 had led unsuccessful efforts in Congress to give bankruptcy judges authority to modify home loans, dispatched his senior economic policy adviser, Brad J. McConnell, to talk with lobbyists for JPMorgan Chase and Bank of America. "Each agreed to take [the idea] back to their folks to see what they could do," says a person familiar with the talks. Citi's concession, the imminent Obama inauguration, and intensifying public hostility toward big banks contributed to an atmosphere Democrats assumed would be conducive to compromise.
TALKING POINTS

By the time McConnell talked to the JPMorgan and BofA representatives the next day, however, "they had gone on full defense mode and started to complain about how lousy a deal Citi had struck," says the person familiar with the exchanges. Bank opposition, Durbin says, "was very shortsighted in light of the mess they have created in our economy."

In the following weeks, banking lobbyists launched a renewed attack on the cramdown legislation, enlisting as an ally Republican Representative Lamar Smith of Texas, among others. Apart from Citi, "the industry remains united in that bankruptcy cramdown would destabilize the market" by creating widespread uncertainty about the value of numerous troubled mortgages, says Steve O'Connor, senior vice-president for government relations at the Mortgage Bankers Assn. His group is distributing talking points to key congressional aides laying out reasons why "Congress should defeat bankruptcy reform legislation." These include the argument that if lenders can't be confident that loan terms will survive, they will raise rates and reject riskier borrowers. Industry lobbyists are organizing home state bankers to pressure moderate Democrats they hope will be receptive to limiting the kinds of loans eligible for cramdown. One target: Senator Evan Bayh of Indiana.

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the help of a bankruptcy court if they are to keep the subdivision home they bought for $579,000 in November 2005. Stefanie, 37, a university human resources coordinator, and James, 40, a federal law enforcement agent, borrowed the entire amount in two subprime loans that required a total monthly payment of $3,000. A representative of their lender, Countrywide, told them not to worry, says Stefanie: They would be able to refinance in a year.

By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed.

But now they are struggling to pay the higher amount. Countrywide's parent, BofA, declined to comment, citing the Smiths' privacy. After BusinessWeek's questions, though, Countrywide called them to discuss cutting their payments.

"We knew when we bought that the payments would be a stretch," says Stefanie. She regrets assuming they would be able to refinance at a lower rate. "We are not deadbeats," she adds. "All we want is a mortgage we can afford."

The Community Reinvestment Act

The Community Reinvestment Act is a U.S. law whose objective is to encourage financial institutions to make loans in low to moderate income (LMI) geographic areas. There is a socioeconomic and racial justice angle to this, as banks might otherwise take deposits in LMI neighborhoods and loan them out in richer neighborhoods. This represents in some ways an outflow of capital from poor people to finance crap for rich people.

Banks would have their loan patterns reviewed by regulators. There were no specific penalties for noncompliance. However, CRA ratings were made public. Regulators were allowed to consider performance under the CRA when approving or rejecting merger or other expansion requests. Regulatory changes under the Clinton administration allowed community groups better access to CRA information and increased rights to protest against banks. In the US, community group protests can have significant regulatory impact. Of course, minority communities often get trampled; for example, they may be frozen out of the hearing process when an industrial or waste disposal company is attempting to clear a hazardous waste site.

The notoriously right-wing Investors Business Daily has an editorial attempting to blame US government interference in the markets on the subprime crisis. They include the Community Reinvestment Act, saying that it forced lenders to loan increasing amounts of money to people who couldn't pay it back. The corollary is that the CRA must then have contributed to the increasing number of defaults that caused the subprime crisis. One conservative commentator accused accused Congress of forcing lenders to substitute identity politics for financial prudence.

Although there is mixed information about the effectiveness of the CRA at increasing affordable loans to LMI households, I doubt that the CRA contributed in a significant way to the subprime crisis.

There is a mutual fund, the CRA Qualified Investment Fund (CRAIX) that invests in securities that support community development activities. Investments in the fund are deemed to be qualified under the CRA; CRA-subject financial institutions can invest in the fund to meet some of their CRA obligations.

Year to date as of 10/13/08, according to Morningstar data, the fund is up 1.49%, which is 9% ahead of intermediate term bond funds. In 2007, the fund was up 5.8%, which was 1.1% ahead of intermediate term bond funds. If borrowers in CRA loans couldn't pay, then we would not expect the fund to have performed so well this year. 9% ahead of its peer group is a lot, placing the fund in the 2nd percentile of peer funds this year. That means it's outperforming 98% of similar funds.

Additionally, the law firm Traigler and Hinckley has published a study on CRA loans in the 15 largest US metropolitan areas. They find that, using 2006 data, banks making loans in their CRA assessment areas were much less likely to make high cost loans, charged less on the high cost loans they did make, and were more likely to retain those loans in their portfolios. Securitization has contributed significantly to the subprime crisis; it reduced the incentive for lenders to be thorough about checking creditworthiness. As the CRA Fund demonstrates, those CRA-qualified loans that did get securitized seem to be performing well (at least, the ones the fund bought). The fact that banks are less likely to make high cost loans is also significant.

Additionally, Aaron Pressman reminds us in his blog for Businessweek that 50% of all subprime loans were made by independent mortgage lenders not subject to the CRA. Another 30% were made by subsidiaries of banks or thrifts that were also not subject to the CRA.

The burden of proof, then, is on the folks with an agenda against making affordable loans to LMI householders to show that the CRA made a significant contribution to this crisis. It's telling that at the beginning of the last Presidential debate, the candidates were asked how the bailout plan was going to affect them. John McCain, who answered first, started by criticizing Fannie Mae and Freddie Mac. These firms definitely were mismanaged, but they don't bear the lion's share of the blame and were completely unrelated to the bailout. The conservatives with an agenda will always try to shift the blame to government entities and regulations, but we shouldn't be fooled.

I'll try to say more later about the actual effectiveness of the CRA at causing affordable lending to LMI households. The data isn't quite as clear there.

Of course, perhaps we should just let the GSEs die

A Businessweek article contends that perhaps the US should just put F and F into conservatorship and let them eventually die. In conservatorship, their existing securities would be guaranteed, but they wouldn't issue new ones. Plenty of foreign investors bought these mortgage backed securities, seeking higher returns than US Treasuries, but with the element of safety. Guaranteeing the debt would be good foreign relations.

However, the fact that so many foreign investors were interested, and were willing to throw cash at these securities meant that effectively, cash was flooding into the US housing market. The easy availability of cash to write mortgages meant that underwriters - like banks - got sloppy. It fed the whole subprime mortgage segment, which used adjustable rate mortgages to take advantage of low US interest rates. The problem was, when interest rates went up, delinquencies mounted, and the US subprime sector self destructed even more spectacularly than Britney Spears. The capital influx also fed a spiral excessive homebuilding. While the US homebuilding industry hasn't Britney Spearsed, it's having dire troubles with excess capacity. Houses are sitting unsold. People aren't interested in buying or aren't able to get a mortgage.

The article, as well as the Morningstar video I linked in my last post, contends that one possible route is to nationalize the GSEs. Without the incentive to produce excess returns for shareholders, all they would have to do is generate enough money to fund their own operations, which would be doable once the market stabilizes. The small government folks will wail and moan, but it's one possible route. Whichever option is chosen, neither firm can be allowed to go under overnight.

US housing market: worse shape than the Anglican Communion?

For all the cracks about the Anglican Communion falling apart ... it really isn't falling apart. I just love lurid headlines.

In particular, the Anglican Communion looks like the very definition of the word "health" when compared to the US housing market.

I've explained before that the US housing market works like this. You get a mortgage at the bank. The bank may then sell the mortgage to an investor so that they can then take the cash and the profit, and loan it out again. Two government sponsored entities (GSEs), the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, are responsible for providing liquidity to the market. Americans love acronyms and cute short forms, so these two companies are known as Fannie Mae and Freddie Mac respectively.

In a liquid market, there is a sufficient volume of trading that someone can easily buy or sell. If you're in the US, the US dollar is as liquid as it gets unless there's a nuclear war and people's faith in the ability of the government to back that cash is destroyed. Liquid markets are very difficult to manipulate. Having a liquid market for mortgages makes it easier for banks to give people mortgages, and that they can offer cheaper mortgages. This makes it easier for folks to own homes.

Fannie and Freddie do slightly different things, and I've always been confused over the two.

From Morningstar, a stock rating service I trust, Fannie does this:

Fannie Mae's two main businesses are buying mortgage and mortgage securities for its own portfolio and guaranteeing payment of securities backed by conforming mortgage loans. The former is a traditional spread business, while the latter is a fee-based insurance business. Fannie only acts in the secondary mortgage market, partnering with originating lenders.

"Spread business" means that Fannie makes money off the "spread", or the difference between the buy and sell prices. IOW, Fannie might package and sell its mortgages for just over what it costs them to buy from banks. Fannie sells to investors. As mortgages are backed by real property, and the packaged (or securitized) mortgages are backed by Fannie, they are often considered safer. Fannie must borrow money in the debt markets to fund these operations.

Additionally, there are conforming loan limits. Fannie and Freddie may purchase loans for single family housing that are up to $417,000 in 2008. The amounts are indexed for inflation, and double and more family housing have higher limits. Loans above these limits won't be able to get the backing of the GSEs. They are harder to sell, and banks would have to offer higher interest rates to make these loans profitable. However, there are still investors who will buy them.

NY Times has a graphic explanation, and you can click through for a larger graphic and some more explanation.




Freddie does this:

With more than $819 billion in assets, Freddie Mac is a government-founded--but not government-insured--business that has been providing liquidity to the U.S. mortgage market since 1970. Freddie Mac purchases and securitizes residential mortgage loans and mortgage-related securities. Only a limited number of competitors offer similar services; Freddie Mac estimates that it finances one in six U.S. homes.

I'm going to be honest here. It's not clear to me how the companies are different. Either way, they both own or guarantee about $6 trillion of mortgages - half of the nation's housing market.

However, both companies may be in distress. Banks typically are highly leveraged, meaning that they take on a lot of debt. They must maintain a certain proportion of highly liquid capital (basically shareholders' equity, which is the earnings that they retain) to guard against potential losses. Fannie and Freddie, however, are exempt from federal and state tax, and had an implicit government guarantee. They essentially operated without a sufficient capital cushion. These days, an increasing number of mortgage loans are nonperforming, meaning that people are defaulting. Fannie and Freddie are guaranteeing these loans. Also, they retain some loans on their balance sheets as assets.

Investors are losing confidence, and an article in the New York Times sparked a selloff in their shares yesterday. Banks can typically raise capital by issuing stock in the markets. But if their share prices are depressed, such new stock will dilute the value of existing stock. The GSEs' share prices are depressed.

It's hard to tell how long this crisis will last. However, there's going to be a lot of worry for some time. Mortgages are likely to cost folks more. It's probably pretty rare for prayers to be offered for a for-profit corporation, but these corporations play an integral role in the housing market. Their shareholders will have to fend for themselves, but Fannie and Freddie may deserve your prayers that they survive in some form or another.


PS, I've heard of some Arab immigrants saving like heck and then plunking a whole wad of cash down for a house. Adjusting to the availability of credit is huge for a lot of immigrants, although a lot of the more frugal ones then can develop very good credit habits.

PPS, Folks thinking of maybe investing in Fannie or Freddie should take a look at this video by Morningstar. Pat Dorsey discusses investment options (he doesn't think you should try), and possible rescue scenarios (none are good for shareholders, which is why he doesn't think you should invest). However, he does contend that Fannie and Freddie are likely to survive in some form.

The incredible shrinking house: could America be starting to lose its fascination with super-sized houses?

Stephen Gandel, writing for Money Magazine, asks the question. An excerpt:

Up until now: Over the years, many a seer has predicted the mass downsizing of the American home. Instead, the average size of newly built houses has continued to rise from just over 1,600 square feet in the late 1970s to nearly 2,300 now.

But a number of trends suggest that this time Americans really might be willing to swap their McMansions for McCottages. For starters, baby boomers, whose eldest members turned 62 this year, are increasingly becoming empty-nesters; with children gone, they need less space.

Families themselves have changed dramatically. Between 1970 and 2000, the percentage of nuclear families - married couples with kids - declined from 40% of households to 24%, according to the Census Bureau. And childless families are expected to increase. For them, the supersize house may no longer be the ideal.

Then too, Generations X and Y seem more intrigued with life downtown where they can enjoy easy access to restaurants and entertainment, a minimal commute and smaller, easier-to-care-for living spaces.

"Ask anyone how many rooms in their house they don't regularly go into and most will admit that they actually live in a small percentage of their home," says Marianne Cusato, an architect who used to design 3,000-square-foot-plus homes but now specializes in cottages.

NY Times: Inside the lending spree at Countrywide Financial

It's a bit of a long article, but the New York Times tells us how it went down in Countrywide Financial, one of the poster children for the subprime fiasco. I'm not going to put the whole article up here, but you can read the whole thing if interested. If you are, skip the spoilers below.

This is basically a tale of greed - is anyone surprised? Countrywide gave their salespeople financial incentives to steer consumers to loans that were the most profitable for Countrywide. It goes without saying that consumers didn't always get the cheapest loans they would have qualified for.

Countrywide's computer systems excluded borrowers' cash reserves until last September (by which time Countrywide was already in financial distress). If it had not, some borrowers could have qualified for lower-cost loans than they received.

Meanwhile, Angelo Mozilo, Countrywide's preternaturally bronzed CEO, sold hundreds of millions of dollars worth of stock, including on the way down to nearly zero. He hasn't made a share purchase since 1987. In other words, he wasn't willing to put his money where his mouth was, in his own business. It's also regarded as bad form to sell when the stock is going down. Stocks can go down when a company is suffering through correctable problems and is investing in its future, so a good CEO should in fact be buying on the way down. Countrywide was also incredibly generous with stock option grants. Companies that are overly generous with options are basically giving shareholders' money away (although options are not bad per se, and are used well by companies like American Express and Microsoft).

And Countrywide continued to have lax lending standards even pretty late into the crisis.

I think I read a survey somewhere, showing that Americans were somewhat in favor of extending aid to at least some borrowers, but were dead against extending any aid to the lenders. I find that a reasonable proposition. The problem is it will be very, very difficult to do that.

As for Countrywide, it is to be acquired by Bank of America. Countrywide was the nation's biggest mortgage servicing platform, and allowing it do die completely would make it harder for people to get mortgages. I've heard bad things about Bank of America's customer service, but they will at least enact stricter lending standards, and they will have the financial resources to cut some borrowers a break so that they can repay their loans. They have no legal requirement to do so, although it would be in their financial interest as well as good PR.

As for Mozilo, it will be hard to prove criminal or civil wrongdoing. One Senator (a Democrat and a man, but I forget his name) asked Mozilo to give away most of his profits to charity. You think he will?

It is within the remit of the Federal Reserve to control lending standards. Alan Greenspan, because of his ideology, refused to even consider doing so. When he cut interest rates after the tech bubble burst, his ideology blinded him to the fact that he was igniting a preventable bubble in housing. Now, some say he should not have cut interest rates so deep; I don't believe I have the information to say that he should not have. However, he could and should have controlled lending standards, but he did not do so. He should share in the blame for this crisis, and I hope the present Chairman of the Federal Reserve, Ben Bernanke, will do better. Bernanke is a Republican, but he seems a smart man.

Federal Reserve's libertarian orientation may have precipitated the subprime crisis

For those of you interested in finance, Marketwatch has this article, which argues that the US Federal Reserve had a strongly libertarian bent under Alan Greenspan. They may have had the authority to impose controls which would have ameliorated the lending situation in the US spinning out of control, but they instead chose to do nothing. This allowed sloppy lending practices. And by the way, this is a global issues, because buyers all over the world have purchased securities tied to US subprime loans.

This tax law change could affect you

Rich Smith, writing for The Motley Fool, talks about a US tax law change proposed by Rep John Dingell. Rich's is writing for investors, warning them to watch out if you own companies affected by housing (homebuilders, and the banks which finance mortgages). That's not so interesting. See my commentary at the end.



Fear members of Congress with good intentions. According to Saturday's Washington Post, there's a movement afoot on Capitol Hill to cut a sizeable stake from that most sacred of America's sacred cows -- the home mortgage interest deduction.

Good intentions
Before I begin to criticize the effort, let's first give it some props: Its intentions are good. In an effort to fight global warming, Rep. John Dingell (D-Mich.) aims to reduce carbon emissions in the U.S. by at least 60% by 2050. His plan would attack the problem in several ways -- all of which raise taxes. (This is Congress, after all.) First, there would be a new $0.50-per-gallon tax on gasoline purchases. Second, new taxes would be placed on oil, natural gas, and coal production. Third, and most controversially, the home mortgage interest deduction would be reduced.

According to the congressional Joint Committee on Taxation, home mortgage interest deductions cost the U.S. Treasury about $80 billion in tax revenue each year -- enough to make it the fourth largest category of tax loophole in the Infernal Revenue Code. Dingell's plan would leave the loophole intact for homes of 3,000 square feet and less, but it would slice off 15% of the deduction as homes grow toward 3,200 square feet, 60% as they balloon to 3,800 square feet, and 90% as they rise up to 4,200 sq.ft. As for homes measuring 4,200 square feet and up -- well, their sacred cows would be taken out back and shot.

The unintended consequences of the law
So why target big houses? Dingell will tell you it's because they have a larger carbon footprint. Bigger houses require more fuel to heat, and since they tend to crop up in suburbs that are distant from jobs, they also cause more gasoline to get burned, as the homeowner needs to get to the place where he earns a living to pay the mortgage. Both of these factors put more global-warming gases in the atmosphere.

But there's an ulterior motive to taxing homes more heavily. Originally designed to encourage homeownership, the sheer lucrativeness of the mortgage interest deduction has morphed it into a subsidy for McMansion ownership. Simply put, the more house you buy, the bigger your deduction. Ergo, the tax break gives taxpayers an incentive to buy bigger houses.

Big fleas have little fleas upon their backs to bite 'em. And little fleas ...
Of course, for a bigger house to be bought, someone must first build it. And someone else must finance first the construction, and then the purchase, of the home. Thus, even though it was first intended to subsidize homeownership, the tax break also acts to support homebuilders such as Centex (NYSE: CTX), D.R. Horton (NYSE: DHI), and Toll Brothers (NYSE: TOL). On the other side of the equation, it generates business for construction companies, as well as home-loan business for bankers such as Bank of America (NYSE: BAC), Countrywide (NYSE: CFC), and Washington Mutual (NYSE: WM).

None of these companies will welcome a curtailment of the tax break that fills their revenue streams to brimming.

That's an awful lot of Indians, General Custer
But it gets worse. Some 68% of Americans own their own homes. That's a sizeable interest group that's likely to oppose Dingell's plan. These people bought homes they could afford -- whatever the size -- in the expectation that they could count on the interest deduction to help pay the mortgage bill. Repeal the deduction, and a lot of homeowners could face sudden and severe cash-flow problems -- and maybe even foreclosure.

From worse to worst
Of course, what really gets people nervous, when they hear that the mortgage interest deduction is in peril, is the potential for declining home values. Take away the deduction, and you lower the amount that people can pay for a house. Lower the ability to pay, and you reduce the price that homeowners can charge to unload their domicile. In other words, Dingell's plan will almost certainly add fuel to the fire that's burning up home equity across the country.

According to the National Association of Realtors (warning: bias alert), every 1% decline in the nation's median house price gives rise to about 70,000 foreclosures. Unsurprisingly, the NAR also opposes Dingell's plan. It argues that since houses larger than 3,000 square feet make up 15% of the housing stock in the U.S. -- more than 10 million homes -- limiting mortgage interest deductions could depress home values by 4% nationwide.

That's more than a quarter of a million potential foreclosures, folks. And Dingell's floating this plan in an election year? Good luck.

Foolish takeaway
Considering the array of interest groups that Dingell's plan would offend, and the presidential and Congressional elections on the horizon, I'd say there is a very slim chance that this deduction curtailment will pass. That said, Al Gore did just win a Nobel Prize for his fight against global warming. That could help Dingell's cause. But time will tell.

Foolish investors should watch this legislation closely. The closer it gets to passing, the more you should be watching your homebuilding and banking stocks.

[Dingell has stonewalled us on vehicle fuel economy standards. I'm therefore deeply suspicious of his attempts to target housing. He does likely want to draw attention away from his ties to the auto industry.

However, he does have a point. American houses are rather large, with proportionate energy costs. Additionally, the fact that mortgage interest is deductible is a bigger benefit for the rich than for the middle or working classes. We need to start providing incentives for people to build smaller houses.]

"Critical" housing needs among US households

WASHINGTON (MarketWatch) -- The proportion of households in the United States with "critical" housing needs is growing, accounting for about 17% of households in 2005, according to a report released Thursday.

The percentage of all U.S. households with critical housing needs is up from 14.2% in 2003 and 14.5% in 2001, according to a report from Center for Housing Policy, the research affiliate of the National Housing Conference. Two criteria describe critical housing needs: spending more than half of income for housing and/or living in dilapidated conditions.

"What we see in this report is the situation before the other shoe drops," said Barbara Lipman, research director for CHP.
Lipman said she is concerned that housing troubles could worsen for both renters and owners in coming years, as problems in the subprime mortgage market are reflected in the larger housing market.

"As interest rates reset, [borrowers] will have to pay larger portions of income for housing. Some will be finding themselves back in a rental market that is already strained, and doesn't provide enough opportunity now," she said. "We're very worried."
The total number of U.S. households with critical housing needs rose to 17.5 million in 2005 from 14.3 million in 2003, with much of the gain by nonworking households, such as the elderly, according to the report.

The availability of affordable housing has not kept pace with demand, Lipman said. "We have not been adding housing for lower and moderate market rentals," she said.

The number of low- to moderate-income working-family renters that spends more than half of income for housing grew 103% to 2.1 million in 2005 from 1 million in 1997, according to the report. Among all low- to moderate-income working families, 5.2 million experienced critical housing needs in 2005, compared with 3 million in 1997, according to the report.
Many low-income households include elderly and disabled members, as well as low-wage earners working full time at jobs that keep communities working, said Nicole Letourneau, a spokeswoman with housing advocate National Low Income Housing Coalition.

Production of affordable housing lags
There's a shortage of 2.8 million homes renting at prices that would be affordable to the more than 9 million low-income renter households throughout the nation, according to NLIHC.
"That shows that the need for more affordable housing is acute," Letourneau said.
John Taylor, president and chief executive of nonprofit National Community Reinvestment Coalition, said he sees home foreclosures hurting whole communities, making it even more difficult for troubled borrowers to find a good housing situation.

"Existing homeowners...are going to find a real constriction of credit," he said.

There are good solutions that have worked to support housing in local communities, such as making it easier and more profitable for builders to work on low- and middle-income projects and being more creative about land use, Lipman said, adding that national support would also be a good idea.
In late July, a House panel approved creating a national affordable housing trust fund with a goal of producing, rehabilitating and preserving 1.5 million housing units over the next 10 years. House floor action is expected in September.
It's also important to educate home buyers about the benefits and risks of homeownership, so that they don't take on obligations that they can't afford, Lipman said.

Ruth Mantell is a MarketWatch reporter based in Washington.

Subprime lending: should we bail homeowners out or not?

I've previously posted about the subprime crisis, where borrowers are defaulting at increased rates, because a) they were offered exotic loans that turned out to be much more expensive than thought when interest rates rose, and b) they went ahead and took those loans. More recently, you may have heard about several hedge funds collapsing because they a) dealt in subprime-related debt and b) they made things worse by using leverage, or borrowed money; this amplifies both your gains and your losses.

Here, I deal with one proposed mechanism for bailing such owners out. This particular program would ensure that borrowers could actually meet the new payments, is financed by issuing municipal bonds (since they are tax free, the interest rate is lower), and aims to be revenue-neutral. Similar programs are rolling out in several states.

However, there are arguments for not bailing people out, or at least exercising great restraint in doing so. If you bail borrowers out, you also bail out the people who lent to them. The lenders keep the profits they've made and indirectly take taxpayer dollars. Worse, because they do, they get the impression that the government will bail them out the next time with corporate welfare. Face it, these folks are rich, and they don't need taxpayer protection. They paid their money and they took their chances.

American Spectator states it thus:

Equally important, a bailout would set an a dangerous precedent. Instead of holding borrowers, lenders, and investors responsible for their actions, the government would be sending the bill for their mistakes to others. Personal accountability is fair and just. It also sends a powerful message: watch what you are doing.

Every time politicians bail out an industry, they encourage more irresponsibility in the future. In this case, everyone in the process -- homeowners, lending institutions, brokerage houses -- would learn that profits are theirs to keep but losses can be palmed off on taxpayers.

Nor would future problems be confined to the homeowners' mortgage market. The federal government has previously bailed out automakers, steel companies, savings and loans, and hedge funds, among many others. We must break this cycle of irresponsibility.

The breakdown of the subprime lending market is going to generate many losers. That's unfortunate. But we should not exacerbate this problem by making it another crisis for taxpayers.

The Spectator article also takes aim at one proposed bailout plan:

Yet Massachusetts Gov. Deval Patrick has led the parade to bail out the subprime market -- by, ironically, issuing more subprime loans. To allow homeowners to refinance, he has proposed a $250 million fund, with $190 million from Fannie Mae, the national mortgage agency backed by the federal government, and $60 million from the Massachusetts Housing Finance Agency, through a new bond issue.

The loan terms -- 30-year, 7.75 percent mortgages for 105 percent of the home's value -- aren't merely generous: they're a bonus for irresponsible financial decision-making.

Government policy should not reward recklessness, yet that's what Gov. Patrick's plan does: subsidizing the overleveraging of an asset that the borrower can't afford or shouldn't be buying. It's an understandable but misguided impulse to help that casts the state in the role of enabler and unconscionably throws gasoline on the flames.

The money would go to the borrowers in the greatest trouble, thus guaranteeing substantial state and federal losses. (The State Senate separately voted to subsidize employers who subsidize home-owning employees.)

There's a perception problem to boot. The Massachusetts plan is a sweet deal for lenders--and Governor Patrick sat on the board of one of the largest subprime lenders in the country while they were issuing these loans that are now going bad. Advancing a plan to ding the taxpayers he is supposed to represent in order to bail out subprime lenders like the one of which he was a director doesn't pass the smell test, let alone the common sense test.

There are, of course, the less savory arguments for not bailing people out. Jonathan Hoenig, writing for Smartmoney, calls bailouts "immoral."

The purpose of government is to protect my rights — end of story. But because there is no such thing as a right to a home, using taxpayer dollars to bail out homeowners or home lender, is an immoral abuse of governmental authority.

This argument is refutable. We do not live in isolation. It's been shown that rental housing, especially if it takes up more than 30% of income, is often linked to poorer health and educational outcomes. Families in rental housing are likelier to be poorer. If it consumes too much of your income, you have less to spend on education, health, and other necessicities. You have less control over your life. Ensuring affordable housing is a matter of the public good. Hoenig, since his wealth could conceivably be used to insulate him, need not care about the public good. But he does live in society with the rest of us ... so he should shut up and pay his taxes.

Of course, affordable housing doesn't necessarily mean ensuring every person has a house. Not everyone can afford a house, and Hoenig is correct that home ownership isn't a right. Providing affordable housing (rental or owned) in a sustainable fashion should be a right, but bailing people out is not the only solution.

And by the way, my personal position at this point is that the bailouts should stand, for now, but that they should only target people who have the ability to repay the full loans. No mass bailouts. And the subprime industry needs some sort of regulation.

Housing is a matter of justice because it's connected to health and education

The Center for Housing Policy tells us that good housing is associated with good health and good education. Providing decent, affordable housing is therefore a matter of justice - a country is obligated to ensure decent, affordable housing for all its citizens and permanent residents. It is the same as being obligated to provide education, national defence, and universal affordable healthcare (btw, the US has failed on that last bit). For those who are only capable of looking at the issue in a self-interested manner, higher inequality is correlated with higher levels of crime. In addition to crime making people unsafe, crime also drives up national spending (police, courts, prisons). Ensuring the well-being of all pays dividends to everyone.


Children that live in…
…housing built before 1960 – approximately 14 million children under age 6 – are more likely to suffer from increased lead exposure and lead poisoning since older rental housing contains the highest levels of lead-based paint hazards.
…good housing conditions – in particular, housing free from pesticides, mold and cockroach infestation – are less likely to develop asthma and, as a result, to miss school.
…stable housing where they move less frequently are more likely to do better on reading and math tests and less likely to drop out of school than children who move regularly.

Children in families that receive housing assistance…
…are approximately 50 percent less likely to suffer from iron deficiencies than children in low-income families that do not receive housing aid.
…in the form of housing vouchers live in better neighborhoods and are less likely to move frequently, experience crowding and to miss school compared to children in families that do not receive vouchers.

Children of homeowners…
…scored up to 9 percent higher on math and up to 7 percent higher on reading tests than their peers in families that rented their homes.
…and their families achieve better physical and mental health outcomes compared to renters, including fewer long-term illnesses, as well as lower blood pressure and depression levels.

The CHP has a number of hypotheses on how housing affects health and education. You can read the document at this link, but here are some selected hypotheses.

-Affordable housing may improve health outcomes by freeing up family resources for nutritious food and health care expenditures.

-By providing families with greater residential stability, affordable housing can reduce stress and related adverse health outcomes.

-Well-constructed and managed affordable housing developments can reduce health problems associated with poor quality housing by limiting exposure to allergens, neurotoxins, and other dangers.

-Stable, affordable housing may improve health outcomes for individuals with chronic illnesses and disabilities, and the elderly, by providing a stable and efficient platform for the ongoing delivery of health care and other necessary services.

-Use of “green building” and “transit-oriented development” strategies can lower exposure to pollutants by improving the energy efficiency of homes and reducing reliance on personal vehicles.

-By enabling families to afford decent-quality homes of their own, affordable housing can reduce overcrowding (and other sources of housing-related stress) that lead to negative developmental and educational outcomes for children.

-Stable, affordable housing may improve health outcomes for individuals with chronic illnesses and disabilities, and the elderly, by providing a stable and efficient platform for the ongoing delivery of health care and other necessary services.

-By allowing victims of domestic violence to escape abusive homes, affordable housing can lead to improvements in mental health and physical safety.

Best places to live and the diversity index

Money magazine has a list of the 100 best places in the US to live - a lot of them are small towns. They also give brief stats for cities or large towns in each state. Here's the data for Seattle.

We can see that property is relatively expensive in Seattle, that there are twice as many bars within 15 miles as average for CNN Money's best places (yay!!), that there are more libraries and fewer ski resorts, that the air quality (% of days with air quality index ranked as good) is better than average for the best places ... and that Seattle has a racial diversity index of 151.9. 100 is the national average. The average for the best places to live, as determined by Money magazine, is ... 59.2.

Wow.

Sammashish, the largest 'best place' in Washington (population of ~40k, vs Seattle's population of ~500k), has an index of 60.2. Saline, Michigan, which is a very charming little town within cycling distance of Ann Arbor, has an index of 31.0.

I leave it to my readers to judge what this means. Keep in mind, this report was focused on smaller towns; I'm not sure if previous years' reports did the same, but that alone biases some of the racial diversity rankings.

What happened to servanthood

This article is courtesy of Thinking Anglicans. It shows that the worship of Mammon isn't only a problem in the Vatican, it's a problem in the Church of England, too. It also shows that Christians are doing work on the ground to bring about Jesus' vision of the Kingdom of God.



The House of Commons voted earlier this year for a House of Lords where most, if not all, members would be elected, instead of being appointed by patronage (News, 16 March). Many Lords are reluctant to cede their privileges, robes, titles, generous allowances, and powers. It might be thought that, with Christian humility, the bench of bishops in the Lords would take a different view. Sadly, no: the Church of England is arguing to retain the lordly bishops, although it concedes that other denominations and faiths might also be ennobled.

My starting point is that Christianity should be the friend of democracy. If all individuals are of equal worth before God, then all should have a vote in choosing those who shape legislation. I do not see why the lord bishops should have such power when they are not selected and removable by the very people for whom Parliament legislates.

If a particular religious group has automatic places in the Lords, why not other bodies? Why not animal-lovers, ethnic minorities, or atheists? And if the lord bishops retort that they are there by divine will, why is it that God elevates so many with smart school and Oxbridge backgrounds, and so few of those who were educated on council estates? No other Western democracy gives power to unelected religious leaders.

Christians should be involved in national politics at the legislative level. Frank Field, Steve Webb, and Alistair Burt are examples of Christian MPs who make no secret of their faith. In the recent elections, in Scotland, for example, the Scottish Christian Party and the Christian Alliance fielded candidates. The difference is that these politicians, while making clear their Christian beliefs, owe their place to democracy, not patronage.

I am not arguing against bishops’ bringing influence to bear on politicians. The seminal report Faith in the City in 1985 contained two bishops among its members. I believe that the then Bishop of Liverpool, the Rt Revd David Sheppard, made a bigger impact through it than anything he said in the Lords.

In a previous age, William Temple, who was Archbishop of York and then of Canterbury, made a series of public speeches during the Second World War which won support for a welfare state. Here Temple and Sheppard were using avenues of influence that were not restricted to those appointed to be Lords. In these capacities, they were not relying on privilege.
I would go further. I think any Christians (not just bishops) should be wary of accepting a place in the Lords. For they, too, are supporting an undemocratic institution. Even before they are elevated, they tend to be drawn from the powerful and wealthy; so their appointment reinforces the dominance of a small élite — to the exclusion of those who are, say, unemployed, on low wages, or in poverty. This is not to deny that some are people of good intent, but their model of change is of two titled superiors deciding for inferiors.

To me, a Christian by conversion, the core questions are: how did Jesus live, and what did he teach? He chose to live modestly; to mix with ordinary people rather than the political and religious establishments; to focus on the poor and the outsiders.

His teaching was that followers could not serve both God and Mammon, and that they should not store up material possessions. He rebuked those who wanted exalted positions and titles, on the grounds that “all of you are on the same level as brothers and sisters” (Matthew 23.8-12, New Living Bible). His style was to be a servant.
This unique approach had a tremendous impact. People such as the tax-collector, Matthew, not only became followers, but also redistributed their riches. A Church was born in which few were powerful or wealthy in the eyes of the world (1 Corinthians 1.26).

This servanthood model may not be the only one, but I am encouraged that more Christians are taking it seriously. The Message Trust, for example, encourages Christians to move into deprived areas. I visited one where they had bought houses, sent their children to local schools, and befriended neighbours. Worship and social activities developed. The community police told me that youth crime had fallen.

Christians in Manchester and Glasgow are to the fore in caring for asylum-seekers, and urging the Government to treat them in a more humane manner. None of the participants are rich or powerful. But change is coming out of weakness. I would love to see the Christians who are now in the Lords leaving their privileges and joining in.

I advocate a Second Chamber called the Peoples’ Assembly, whose members are elected as individuals, not party creatures. They should have modest allowances, but no titles. It would attract those who wanted no reward except to serve others. I dream. Gordon Brown has declared that, if he becomes Prime Minister, he wants to engage with ordinary people. Why not a Second Chamber made up of everyday types?

Bob Holman is Visiting Professor of Social Policy at the University of Glasgow, who has run a project on the Easterhouse estate since 1987. His latest book is F. B. Meyer: If I had a thousand lives (Christian Focus).