“On Thursday, Treasury announced that 500,000 homeowners had since had their payments lowered on a trial basis, celebrating this as a milestone.

But the report from the oversight panel directly challenged the administration’s characterizations.

Most prominently, the panel had grave uncertainty about whether large numbers of the trial loan modifications — which typically run for three months — would successfully be converted to permanent terms.

As of the beginning of September, only 1.26 percent of trial modifications that had made it through the three-month trial period had become permanent, the report found. Of course, very few of those trial loans had reached their three-month expiration because the program only recently began processing large numbers of applications. As of Sept. 1, the Obama plan had produced 1,711 permanent loan modifications.

Some homeowners complain they have received trial modifications only to have them canceled for what seem dubious reasons — checks sent but supposedly never received, documents once in the file but suddenly missing.”

“My objection is that the article implies that low down payment loans are a bad idea. They aren’t necessarily. Low down payment loans can be a viable business, but lenders need to screen borrowers much more carefully than when they have a much bigger loss cushion.

And using low down payment loans as a way to prop up the housing market IS a bad idea. The fact that the FHA is cranking so many loans through more or less the same administrative platform is strong evidence that its lending standards have gone out the window.”

““I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”
Barney Frank, chairman of the House Financial Services Committee on recent FHA lending.”

“Of the 34 miscreants, two are pretty large, namely AIG and CIT, But the next on the list is First Bancorp, which received a mere $400 million from the TARP. Probably more important than the number is the trend, since the number of institutions that skipped dividends nearly doubled. In a supposedly improving economy and with a steep yield curve (at least until very recently), things appear to be getting worse rather than better.

I didn’t post on this because I assumed the MSM would be all over it. So I am pretty surprised to see it has gotten very little coverage. The usual suspects (Bloomberg, Financial Times, Wall Street Journal, New York Times) were silent.”

“I think the crisis came about primarily because people of all stripes did novel, complex and dangerous things, in greater amounts than ever before. In the world of investing, for instance, people made excessive use of borrowed money — “leverage” — and committed too much capital to illiquid investments. It all happened because people believed too much, worried too little and thus took too much risk.

Worry and its relatives, distrust, skepticism and risk aversion, are the essential ingredients for a safe financial system. To paraphrase a saying about the usefulness of bankruptcy, I think fear of loss is to capitalism as fear of hell is to Catholicism. Worry keeps risky loans from being made, companies from taking on more debt than they can service, portfolios from becoming overly concentrated, and unproven schemes from turning into popular manias. When worry and risk aversion are present as they should be, investors will question, analyze and act prudently. Risky investments either won’t be undertaken or will be required to provide adequate compensation in terms of anticipated return.”

The New Yorker on the madness that is Martin Armstrong (courtesy of Barry Ritholtz)

Vanity Fair’s long must read piece on the efforts that were made last year to save MS and GS during the financial crisis. Lost in this excerpt is how incompetent it makes Ken Lewis look again – as the piece illustrates how other CEO’s (Dimon of JPM refusing to buy MS) had the balls/integrity/gumption/call it what you will to say no when bullied by Geithner and Paulson.

South Park: Billy Mays pimps Chipotlaway!

-KD