International Real Estate: Real Estate in Germany

The property market was unaffected by the global financial crisis, mainly because of the conservative lending practices of German banks.



Consumer Advocacy Group Weighs in on AG Settlement

Rumors have been circulating for some
time that the Obama Administration is pressuring the 50 state attorneys general,
the Justice Department and the Department of Housing and Urban Development to
settle with major banks over issues relating to errors in servicing and
foreclosure abuses including the robo-signing uproar.  The settlement has been controversial and several
attorneys general including those in California, Delaware, and New York have opted
out of the settlement and/or launched independent lawsuits of their own,
claiming the settlement is not sufficient to the offense.  The rumors have intensified over the last few
days based on a theory that the President hopes to announce the settlement
during his State of the Union Address tonight.

Today the Center for Responsible Lending
which has been an early and outspoken critic of mortgage lending came out in
favor of the settlement saying, while it isn’t perfect, it would represent an important
step forward in addressing foreclosure abuses

“The settlement would include key reforms to clean up unfair mortgage
servicing practices,” the statement from the Center said.  “It would also provide an important template
for ways banks can use principal reduction to reduce unnecessary foreclosures
and put the country back on a path to economic recovery.”

While the Center admits that not all
details of the settlement are available as yet, but based on current
information, the key reforms include:

  • The
    elimination of robo-signing as banks would agree to individually review
    foreclosure documents according to the law.
  • Adoption
    of practices that would improve communication with services and end servicer
    abuses including fairer treatment for homeowners who are late on mortgage
    payments.
  • More
    sustainable loan modifications including a requirement that banks “get serious”
    about reducing principal balances.
  • While
    the state AGs would be prohibited by the settlement from pursuing further
    actions against the banks, the Center said that nothing in the settlement would
    prevent homeowners from suing on an individual basis nor would the settlement
    shield the banks from prosecution for criminal activities or from claims based
    on mortgage securities violations, fair lending suits or claims against the
    Mortgage Electronic Registration System.
  • The
    settlement would be enforceable in court by an independent monitor.

The Center said that its research
indicates that the country is only about half-way through the mortgage crisis,
but the proposed settlement would wrap up a year-long investigation into
robo-signing and other abuses and is “crucial to containing the damaging
effects of foreclosures on our economy.” 
It stresses, however, that additional policy actions on multiple fronts
is a necessary addition to the settlement.

…(read more)

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Navigating a Tight Rental Market

Demand and rents are up as the housing crisis and tighter lending standards have left many people unable to or wary of purchasing a home. So finding a deal requires compromise and negotiation.

Navigating a Tight Rental Market

Demand and rents are up as the housing crisis and tighter lending standards have left many people unable to or wary of purchasing a home. So finding a deal requires compromise and negotiation.

OIG Finds FHLBanks Corrected Foreign Credit Exposure, more Supervision Needed

The Office of the Inspector General
(OIG) of the Federal Housing Finance Agency (FHFA) issued a report this morning
that was mildly critical of the FHFA’s oversight of Federal Home Loan Banks (FHLBanks)
granting of unsecured credit to European banks.   OIG said that extensions of unsecured credit
in general increased by the FHLBanks during the 2010-2011 period, even as the
risks for doing so were intensifying.

FHFA regulates the FHLBanks and has
critical responsibilities to ensure that they operate in a safe and sound
manner.  FHFA’s OIG initiated an
evaluation to assess the regulator’s oversight of the Banks unsecured credit
risk management practices.

Unsecured credit extensions to European
institutions
and others grew from $66 billion at the end of 2008 to more than
$120 billion by early 2011 before declining to $57 billion by the end of that
year as the European sovereign debt crisis intensified.  During this period extensions of unsecured
credit to domestic borrowers remained relatively static but extensions to
foreign financial institutions fluctuated in a pattern that mirrored the
FHLBanks’ total unsecured lending.  That
is, it more than doubled from about $48 billion at the end of 2008 to $101
billion as of April 2011 before falling by 59 percent to slightly more than $41
billion by the end of 2011.

FHFA OIG also found that certain
FHLBanks had large exposures to particular financial institutions and the
increasing credit and other risks associated with such lending.   For example, one FHLBank extended more than
$1 billion to a European bank despite the fact that the bank’s credit rating
was downgraded and it later suffered a multibillion dollar loss.

During the time period in question OIG
found there was an inverse relationship between the trends in lending to
foreign financial institutions and the Banks advances to their own members.  Since mid-2011 the extensions to foreign
institutions have declined sharply but the advances have continued their
longstanding decline.  OIG said it
appears that some FHLBanks extended the unsecured credit to foreign
institutions to offset the decline in advance demand and that they curtailed
those unsecured extensions as they began to fully appreciate the associated
risks.

At the peak of the unsecured lending,
about 70 percent of the FHLBank System’s $101 billion in unsecured credit to
foreign borrowers was made to European financial institutions and 44 percent
were to institutions within the Eurozone. 
About 8 percent of unsecured debt ($6 billion) was to institutions in
Spain, considered by S&P to be even riskier than the Eurozone as a whole.

Some banks within the FHL System had
extremely high levels of unsecured credit extended to foreign borrowers.  The Seattle Bank’s exposure to foreign
borrowers as a percentage of its regulatory capital was more than 340 percent
in March 2011; Boston was at 300 percent, and Topeka 360 percent.  All three had declined substantially by the
end of 2011 but Seattle and Topeka remained above 100 percent.

OIG said that the vast majority of the
Banks’ extensions of unsecured credit appeared to be within current regulatory
limits (although OIG said these limits may be outdated and overly permissive),
some banks did exceed the limits and OIG found the three banks (which for some
reason it treated anonymously) definitely did so and blamed that on a lack of
adequate controls of systems to ensure compliance.

OIG reviewed a variety of FHFA internal
documents during the 2010-2011 period during which it found the Agency had
expressed growing concern about the Banks’ unsecured exposures to foreign
financial institutions.  But, even though
FHFA identified the unsecured credit extensions as an increasing risk in early
2010, it did not prioritize it in its examination process due to its focus on
greater financial risks then facing the FHLBank system especially their private
label mortgage-backed securities portfolios. 
In 2011, however, FHFA initiated a range of oversight measures focusing
on and prioritizing the credit extensions in the supervisory process and
increasing the frequency with which the Banks had to report on that part of
their portfolios.

OIG believes that FHFA’s recent initiatives
contributed to the significant decline in the amount of unsecured credit being
extended by the end of 2011.

The final findings issued by OIG in its
report are:

  1. Although
    FHFA did not initially prioritize FHLBank unsecured credit risks, it has
    recently developed an increasingly proactive approach to oversight in this
    area.
  2. FHFA
    did not actively pursue evidence of potential FHLBank violations of the limits
    on unsecured exposures contained in its regulations.
  3. FHFA’s
    current regulations governing unsecured lending may be outdated and overly
    permissive.

To correct
these deficiencies, OIG recommends that the Agency:

  • Follow up on any potential evidence of violations of
    the existing regulatory limits and take action as warranted;
  • Determine the extent to which inadequate systems and
    controls may compromise the Banks’ capacity to comply with regulatory limits;
  • Strengthen the regulatory framework by establishing
    maximum exposure limits; lowering existing individual counterparty limits; and
    ensuring that the unsecured exposure limits are consistent with the System’s
    housing mission.

…(read more)

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