Lawmakers Call for Federal Foreclosure Investigation

10/05/2010 By: Carrie Bay

 

By Charles Payne, CEO & Principal Analyst

 

 

This week, it's all about housing data as a combination of starts and home sales will tell us if builders are feeling confident enough to add to inventories that are officially declining but still high. The shadow inventory of homes repossessed by banks could start to leak out onto the market as there is a sense the coast is clearer. But, the messages will probably be mixed because we understand that housing should reach a bottom at some point. (The Deutcshe Bank report that by the first quarter of 2011 half the housing in this nation will be underwater is frightening.) With lingering high unemployment it will be important that individuals are lured into the housing market. I've been shocked at the lack of takers for the government's first-time homebuyers plan. I think that the plan may indeed be raised to $15,000 from $8,000, but as long as it discriminates against families making a certain amount of money it will never live up to potential. It is odd that people will get as much money from the government to buy an electric car as they do for buying a new home.

It just goes to show that the green agenda is far more important to the Obama Administration than smart and honest efforts to clean up the housing mess.

The Role of Banks

Big banks have been saved through taxpayer dollars, and yet they aren't lending but instead are cutting credit lines, doubling fees (I had a caller on my radio show this past Saturday "The Charles Payne Show" on KFI AM 640 that just received a letter that his fees were doubling), and simply sitting on cash. These banks deemed to big too fail are getting bigger so maybe they will start to make loans. On the topic of banks, there is an odd form of creative destruction going on where survivors are benefiting from the losers. Those that survive end up being gobbled up by those that survive. There is an artificial twist, however, when those that survive were selected to live by the government and not the nature of business. We saw that at work over the weekend.

BB&T (BBT) was able to takeover Colonial Bank based in Montgomery, Alabama with the help of the FDIC eating the bulk of the risk (the failure cost the agency $2.5 billion). Colonial Bank is the sixth largest bank failure on record, and largest of 2009. With $25.0 billion in assets and $20.0 billion in deposits this failure is a big deal. I know that it's smart for these things to be handled late Friday and over weekends with respect to keeping them out of the public eye, but this has to raise a red flag. BB&T received more than $3.1 billion in taxpayer money through the TARP program. The bank paid back the money on June 9, and eventually bought back the warrants held by Uncle Sam. On this deal the government made $159.7 million, or a 5.0% return. That's a good return over a short period of time but it was still a rotten deal.

Moreover, the fact that BB&T is already making huge deals, albeit with the aid of taxpayers (again), proves the bank didn't need our money to begin with. I think that it's great BB&T was able to buy Colonial, which made the mistake of expanding into Florida at the wrong time and ended up saddled with $1.7 billion in bad loans.

Bank failures are on the rise. In the last five weeks there have been 4.8 bank failures versus only 1.8 for the first five weeks of the year. Last week's failures include:

> Community Bank of Nevada
> Community Bank of Arizona
> Union Bank of Gilbert Arizona
> Colonial Bank of Alabama
> Dwelling House Savings and Loans