Keeping a track of all the fluid, hourly changing developments in Greece can be unbearably complex, and as a result one may be left with the impression that things are better than they really are. They aren't. As the SocGen report below summarizes, Greece may have about 72 hours before it gives itself a Pass/Fail grade on Sunday, which in turn will have massive repercussions on the Troica bailout, on the eurozone, on the EUR, and on all those "Lehman-like" consequences you have been reading about. Once again, just like 2000 years ago, the fate of the western world (we would say democracy but that has not been the case for centuries), is about to be decided by a few popularly elected parliamentarians in Athens.
From SocGen:
Greece: One step closer to the precipice
Greece's sovereign crisis has reached a critical phase, and the likelihood of a disorderly outcome has risen dramatically in the last 48 hours.
Two-year Greek bond yields breached the 30% mark, while Irish and Portuguese yield spreads reached one-year highs.
In the meantime, Greek economic and fiscal data continue to disappoint, and public discontent is rising in the face of the human costs of an ever deeper economic downturn.
Against this backdrop, the backlash from yet more austerity has triggered a severe blow to the ruling Government. The catch is that the Government needs to approve the Medium Term Fiscal Plan for EU/IMF funding to be disbursed. This is looking challenging as the survival of Papandreou's government hangs on a formal confidence vote on Sunday, and two more defections from the ruling PASOK party on Thursday depleted its majority even further.
Given these unexpected complications, the IMF is now reportedly ready to release its next quarterly instalment to Greece purely on the basis of assurance of EU funding rather than on formal conditionality, paving the way for the €12bn July tranche being disbursed. Olli Rehn stated that the deal on this payment should be forged at this Sunday's meeting in Luxemburg.
However, even assuming that the domestic political hurdle is cleared and the €12bn loan is issued, the divide between German and French positions on private sector burdensharing is unlikely to be resolved immediately, and so the uncertainties about Greece's longer-term funding seem destined to persist.
Indeed, the degree of private sector involvement will have a material impact on Greece's funding needs. The IMF estimates that Greece's financing need for the next three years amounts to €144bn in the absence of private sector involvement, but it would fall to €120bn with a "voluntary" rollover, and to around €90bn with an outright maturity extension. Ultimately, we continue to see a Vienna-style initiative as the most palatable compromise.
Politics: Irish parallel
Greece's rising economic and social tensions have morphed into a fully fledged political crisis. Just as in Ireland at the beginning of this year, the Greek opposition is now demanding more favourable conditions than those originally signed with the EU/IMF back in May 2010. But the political situation has become extremely fragile, posing a material threat to the EU/IMF disbursement of the July tranche of the loan, and a solution to Greece's medium-term funding gap.
Catch-22
Despite some reassurances from EU Commissioner Olli Rehn on Thursday evening, the formal conditions for Greece to obtain funding from the EU are under severe risk of failing, because EU funding is conditional on the Greek Parliament passing the Medium Term Fiscal Plan. A failed vote of confidence could critically derail this process. In turn, the EU/IMF programme's fifth quarterly disbursement of €12bn is conditional on the EU providing funding for Greece over the next year. Only then will the IMF contribute its €3.3bn share of the total quarterly disbursement of €12bn. This double conditionality in principle creates a deadlock, and the Greek Parliamentary vote of confidence becomes a de facto necessary condition for cash heading to Greece in early July. Right now, the odds don't look so good.
The vote: The odds are tight
Prime Minister George Papandreou stated that he would reshuffle his cabinet on Thursday, and demand a confidence vote in Parliament. Taking into account the three days usually required for this process, the actual voting is unlikely to take place until Sunday June 19. There is a lot at stake with this vote. A successful outcome would throw the ball back into the EU's court, and allow the EU/IMF policymakers to proceed with devising a medium-term funding solution for Greece.
But political risks remain extremely high. PM George Papandreou's majority is extremely narrow after two further defections on Thursday. The margin of victory may boil down to one or two votes, making the outcome virtually unpredictable at the time of writing.
Policy solutions: Two constructive developments
Notwithstanding the high hurdle posed by the vote of confidence, a legitimate question is how this policy deadlock might be overcome. There are two positive developments on this front.
Firstly, the IMF is now reportedly willing to release its next instalment to Greece purely on the basis of assurance of EU funding rather than only conditionally after formal binding commitment.
The second positive development is that Germany's demands for private sector burden-sharing have been toned down slightly. This opens more leeway for negotiation between Germany and France, given their differences of opinion on the optimal degree of private sector involvement.
The impression is that this critical decision may be postponed to a later date.
Private sector involvement: a key divider
One possible way forward that is reportedly being evaluated is for the IMF to obtain the commitment "in principle" from the EU to meet any shortfalls in financing if a private creditor contribution cannot be agreed at a later date, but for the IMF to proceed with the disbursement anyway. But this area remains surrounded by uncertainty.
Private sector involvement makes a large difference on the aggregate funding costs
One of the few certainties is that the degree of private sector involvement could make a major difference to Greece's financing needs.
The IMF is reported to estimate Greece's financing need for the next three years to amount to around €144bn in the absence of private sector involvement, and to around €120bn with a "voluntary" rollover. The most effective way to reduce Greece's financing needs would be an outright maturity extension which would limit the required financing to €90bn.
Also for these reasons, we continue to see a Vienna-style initiative as the most likely outcome as the most palatable compromise.
What to Expect from next week's EU meetings?
Looking ahead, what seems increasingly likely is that next week's Eurogroup and Ecofin meetings (June 20-21) are unlikely to result in a policy leap, and that the elusive "crunch time" will shifts to July 11, or quite possibly even later.
Against this backdrop, the only certainly seems that uncertainty is destined to remain high, alongside the perceived risks of contagion. Hardly a constructive environment for Europe's highly indebted periphery.
Global regulators are poised to set a new tiered regime of additional capital requirements for about 30 of the world's biggest banks, in the latest effort to ensure the next financial crisis can be contained.
The regulators plan to place each institution into a "bucket" carrying a particular surcharge based on bank size, global reach, structural complexity and whether other banks could absorb its business. Banks could move between categories as their size, structure and risk appetite change.
At least eight banks — three from the US and five from Europe — are being targeted for capital surcharges of 2.5 per cent of their assets, adjusted for risk, on top of the 'Basel III' minimum of 7 per cent set by global regulators last year. The list is an informal effort to forge a global compromise and has not been formally circulated.
If the ideas are adopted, Citigroup, JPMorgan, Bank of America, Deutsche Bank, HSBC, BNP Paribas, Royal Bank of Scotland and Barclays would have to maintain core tier one capital ratios of 9.5 per cent, according to three people briefed on the discussions.
Goldman Sachs, Morgan Stanley, UBS and Credit Suisse would be in the next category down, facing a surcharge of 2 per cent and total minimum ratio of 9 per cent.
Another 10 to 15 banks are likely to face surcharges ranging from 0.5 to 2 per cent as part of the effort to make "global systemically important financial institutions" more resilient. These banks are considered so big and important to the global economy that they would probably have to be rescued by taxpayers if they got into trouble.
As drafted, there is an "empty bucket" above the highest tier that would carry a surcharge of at least 3 per cent. It is intended to serve as an "important deterrent" to risky behaviour.
People involved cautioned that the list remained fluid. Some countries have objected to an earlier formal proposal that would have imposed even higher surcharges.
Regulators are due to meet in Switzerland at the end of next week. Fierce lobbying is still going on and banks have been categorised using data that does not reflect some of their efforts to cut risk and shed assets. Banks that have shrunk dramatically – such as Citigroup and RBS – may shift downward.
Japanese and French negotiators are also fighting to keep Crédit Agricole, Société Générale, Mitsubishi UFJ, Mizuho and Sumitomo Mitsui out of the top categories, so their final positioning is unclear.
Regulators are still arguing about how much of the surcharge will have to be equity and to what extent contingent capital — bonds that convert to equity in a crisis — would be an acceptable substitute.
The CAG Draft Report on the audit of the Production Sharing Contracts for the on-shore and off-shore oil and gas blocks is now widely being circulated in the media, showing once again the unholy nexus between the UPA and big capital in the country.
The CAG has shown that the Directorate General of Hydrocarbons (DGH) allowed Reliance Industries and other private operators to gold-plate the capital costs of the plant allowing them to make huge profits. The Production Sharing Contract pegged the profit share of the private operators and the Government to something called an Investment Multiplier, which meant that higher the capital cost, the larger the share of the profits of the private parties.
The capital costs in the KG Basin D-6 Block went up from $2.4 billion in the initial contract to $8.5 billion. This was the pattern followed in other gas and oil fields also, involving Reliance, Cairn Energy and others. In all this, the modus operandi was to submit a bid which shows a certain capital cost and during the operation of the contract, inflate the capital cost by a huge amount with the connivance of DGH and the Ministry of Petroleum. The Management Committee in which the Government had 2 nominees out of 4 played no oversight role in such inflation of contracts.
For inflating the capital costs, the familiar route is of course over-invoice through sweetheart deals from "friendly" sub-contractors, sometimes even a Reliance family company. While the CAG has not computed the loss to the exchequer, it has held that the Government has suffered large losses on this account. It has also held that the Production Sharing Contact being followed by the Government of India has very little controls on the investment costs, unlike for example, Bangladesh, where the Management Committee which has 50% Government nominees as in India, has to approve any expenditure above $500,000.
The CAG Draft Report has also brought out that while the contract envisaged that if the company did not develop certain areas within the contracted area within the stipulated time, it should have been relinquished. Instead, the DGH and the Ministry of Petroleum allowed the whole area to be designated as "discovery area" in violation of the contract.
As we shall show below, there are two sets of scams that have taken place, CAG having looked at only one of them. One is of course various violations of the Production Sharing Contract as pointed out by CAG; the second is the high price of Reliance gas — $4.2 per Million BTU (MBTU) — set in 2007 by the Empowered Group of Ministers headed by Pranab Mukherjee. Reliance itself admitted in the Court case between it and NTPC/Anil Ambani Group that its production cost was $1.43 per MBTU. Reliance Industries Ltd. (RIL) had initially agreed to supply gas at $2.34 to both NTPC and Anil Ambani Group, which it subsequently reneged once the EGOM set the price at $4.2. It might be noted that by its own calculations, RIL would have made profits of 50% if it had supplied gas at $2.34.
Gold-plating Capital Costs in KG D6 Block and the role of DGH
The Gas and oil field in question is known as KG-DWN-98/3 (Block D-6), and consists of 8,100 sq. Km. of off-shore area in the Krishna Godavari basin. Block D-6 was awarded to Reliance Industries (90%)and Niko Resources Ltd (10%) under New Exploration Licensing Policy 1 (NELP-1) bidding round under a Production Sharing Contract. Initially, the D6 was to produce 40 million MMSCD (Million Cubic meters per day), which was subsequently revised to 80 MMSCD. The initial development cost in the contract was $2.4 billion which was revised through an "addendum" in 2006 to $5.2 billion in the first phase and $3.3 billion in the second phase. CAG has also observed that the $3.3 billion for the second phase has every possibility of being hiked up in the same way as the first phase.
The Production Sharing Contract (PSC) that the Government had struck with RIL in 2000 envisaged that there would be something called "cost petroleum", which would cover Government royalty of 5%, operating costs, the costs of exploration, and the development cost of producing gas. Till the the capital costs are recovered, 90% of the petroleum/gas sold would be considered as "cost" petroleum and the rest 10% would be "profit" petroleum.
The catch here is that proportion of profit sharing changes depending on the amount of cost recovered to the total cost, something that the contract calls as Investment Multiplier. The proportion of shares between RIL and Government is pegged to this Investment Multiplier. Till the major portion of the costs are recovered, Reliance gets the major share of the "profit" petroleum. It is only after the major part of the costs have been recovered that the Investment Multiplier begins to increase and so does Government's share, which is pegged to this Investment Multiplier. That is why increasing capital costs helps Reliance retain a much larger share of the profits in the initial years, while the Government gets its share only in the last phase, when the production starts to decline.
Reliance therefore can make a double killing — by over invoicing the capital costs, it can skim money from the top. In addition, by ensuring that the capital costs take a longer time to recover, it takes out its major share of the profit right in the beginning.
If it was only a question of getting money later, it could be argued that Government has not suffered a loss, only postponed its earnings. But here is the problem. In financial accounting, money earned later has to be discounted by an amount equivalent to what we would have earned if we had put the money in the bank and earned interest. The same amount earned today therefore is more valuable than money earned one or more years later. If we apply the standard discounted cash flow method – discount future earnings by a nominal discounting rate of 10% – we find (see table below) that Government's share would have been 63% of the total profits if the original figures of production and and capital costs retained, while now it is only 48%. Conversely, Reliance's share goes up from 37% to 52%.
If a 16 year period is taken and/or production figures increased, the figures would change somewhat, but the broad trends would remain the same.
If we look at the fact that the extra investments have doubled production, how much has each of the parties gained out of this doubling of revenue? Out of the extra revenue (at discounted prices) of about $7.5 billion, Reliance gains about $5.5 billion and the Government only about $ 2 billion.
The increase of four times the capital cost for a mere doubling of production had always seemed highly suspicious. No logic can explain why doubling of capacity to should lead to such an increase – economies of scale normally ensures that a doubling of capacity would increase capital cost by about one and half times. The Draft CAG Report now makes clear that the increase from $2.4 billion to $5.2 billion took place for the first phase, where no augmentation of capacity was involved. This makes nonsense of the bidding procedure for awarding of blocks, as the calculations for award of blocks involves profit shares promised by the various parties. If the capital costs change, all this change, vitiating the award of contract itself.
Not only did the Directorate General of Hydrocarbons accept this increase in capital cost, which under the contract it need not have accepted, it did so in unseemly haste – it took a scant 53 days to go through cost increase of nearly $ 6.3 billion! Some wizardry indeed.
The CAG's Draft Report brings out the various ways costs could have been doctored – single party bids, making changes to scope, substantial variation on orders, etc. CAG has stated that it is going to examine these issues in greater detail in a subsequent audit.
In November 2009, preliminary investigations by the CBI had found evidence of "gross abuse and misuse of public office" by V K Sibal, the then Director General of DGH. This had been informed to the Petroleum Ministry and to CVC. Numerous links had been found between Sibal and Reliance. The CBI enquiry remains stalled, very much in the telecom 2G mode, showing that Reliance tentacles in the Government go far beyond Sibal.
The Curious Case of $4.2 Gas Price
An Empowered group of Ministers (EGoM), in September 2007, set the price of gas at $4.2 per MBTU for five years with no transparency and without giving any reason for this price. It might be noted that in the same period, (2005-2008), ONGC was being paid only $1.8 per MBTU. The $4,2 price was supposedly done on the basis of RIL's price "discovery."
Reliance's price discovery was to ask a selected set of bidders to quote a gas price according to a formulae which fixed the price within a narrow range of $4.54 to $4.75. With this as the basis, Reliance declared the "discovered" price to be 4.59/MMBtu which was later revised to $4.3/MMBtu. The Government then magnanimously decided that the right price was $4.2 and claimed that it was arrived at through "a discovery" mechanism.
It might be argued that the Government also gained out of the high price of gas. This is indeed true – by our calculations, the Government stood to gain about $4 billion or about Rs. 20,000 crore from the increased price of gas as its share of profits. However, as gas is the major feedstock for fertiliser production and also a fuel for power, this gain has to be balanced against the resulting higher fertiliser and power prices. If the cost of production of fertiliser and power goes up, so does the government subsidy. So while the RIL would pocket the benefit of the higher cost of gas, the Government would have to pay out a much higher subsidy of around Rs. 75,000 crore for a gain of Rs. 20,000 crore and therefore incur a net loss of more than Rs. 55,000 crore.
It is indeed strange that at a time that the government complains about high cost of subsidies, it should itself promote policies that help private parties while pushing up its own subsidy bill.
Not only was the price set at a much higher level than the cost of production, it was also set in foreign exchange and pegged to the price of crude in the international market. Why should the gas price be set in dollars for even the future when the costs have already been incurred and therefore can easily be converted into rupees? Why should the gas price be set at $4.2 when RIL itself admitted in the court proceedings between it and Anil Ambani's RRNL/NTPC that its cost price of gas was $1.43 and it was willing in 2004 to sell NTPC gas at $ 2.34? What is the justification of pegging the domestic gas price to the price of crude in the international market, to which it has no relation?
Fixing gas prices without examining cost figures and a mechanism of converting the cost figures to a gas price is making gas pricing another way of handing out private largesse. No basis of the gas price rate of $4.2 has been given, so how did the Ministers pull this figure of $4.2 – straight out of their collective hat?
Promoting RIL's Monopoly in Gas
The last issue is one of monopoly. At the moment, Reliance is major gas producer, Reliance Gas Transportation and Infrastructure Limited (RGTIL) owns the pipeline and again Reliance is getting orders for citywide distribution of gas. Unlike the electricity sector, the Government does not have a problem in gas sector with a vertical monopoly of the type that Reliance is building. Originally, there was a proposal of a national gas grid, which would have GAIL as the nodal agency. This also makes economic sense as whoever owns the gas grid effectively dictates to both the producers as well as the consumers. That is why generally such facilities are independently run, with the state playing a crucial role. Unfortunately, all such policies in the country come a cropper when Reliance is in the picture. So also with the original gas grid. If we have a gas grid now, it will largely be a Reliance grid, with GAIL and others playing second fiddle.
We are already seeing the effect of this monopoly, with Government owned GAIL becoming a junior partner to Reliance and the transportation cost of $1.25 being charged by Reliance, over and above the $4.2 and again without any regulatory oversight.
CAG has made clear that the form of Production Sharing Contract under the NELP is deeply flawed in favour of the private operators. It provides a perverse incentive to increase capital costs to the detriment of Government's share of revenue. This is a policy issue that needs to be urgently addressed in view of the large number of blocks that have been handed out under NELP.
What does all this mean for the Indian people? Simply put, we are facing a double loot. On one hand, scarce national resources are being given away at a pittance. Gas and coal resources are being handed over to Amabanis, Tatas and sundry others at throw away prices. However, this is not helping the consumers, who are being asked to pay international oil and gas prices. Private loot of public resources coupled with public loot of the consumers – this is the essence of our petroleum policies.
It is indeed welcome that CAG has drawn attention to the problems in the Production Sharing Contract under the New Exploration Policy of the Government. However, it is important that other issues also be addressed, a key one being the pricing of gas. As for the CBI enquiry against officials who have connived with Reliance, hopefully public pressure will force a reluctant UPA to act. The only question is will Reliance be also put on the dock for having subverted the government machinery and having secured these huge windfalls?
Japan's Sega Corp joined the rapidly growing club of video game companies whose computer systems have been hacked by cyber criminals, the company said on Friday.
The news capped a week in which the Lulz Security group of hackers launched a cyber crime spree against other video game companies.
In an unexpected twist, Lulz responded to the news of the attack on Sega by offering to track down and punish the hackers who attacked the Japanese maker of video game software.
The drama surrounding the recent round of video game breaches paled compared to what PlayStation maker Sony experienced following two high-profile attacks that surfaced in April. Those breaches led to the theft of account data for more than 100 million customers, making it the largest ever hacking of data outside the financial services industry.
They also exposed what turned out to be a large number of security holes in sites throughout the global Sony media empire. That led to a rash of attacks on Sony systems that undermined confidence in the company and made it the source of frequent jokes by security experts. Its security staff scrambled to repair vulnerabilities in its network as independent experts identified new problems via remote scans and disclosed them to Sony and the public.
Sega said that some personal information about an unspecified number of Sega Pass online network members had been compromised in the attack, according to a letter the company sent to customers on Friday that was published on the PlayStation LifeStyle.net website.
Customer email addresses and birthdates, which can be read in plain text were taken, as were passwords, which could not be read in plain text because they had been scrambled or encrypted using security software before being store in the database.
Sega shut down the Pass network on Thursday, the day it learned of the breach, telling customers in a note on its website that it was "undergoing improvements." It was not immediately clear when it would go back online.
The video game developer is a division of Japan's Sega Sammy Holdings, which makes game software such as Sonic the Hedgehog as well as slot machines.
Sega was one of the biggest video game consoles makers in the 1990s, but pulled out of the market in 2001 in response to disappointing sales of its Dreamcast system, which had debuted in 1998 to widespread industry praise.
Dreamcast lost ground to newer products developed by Sony and Nintendo. It now focuses on developing video games for systems made by other companies.
Lulz Gets Involved
While the FBI is likely to be called in to investigate the attack on Sega, as the bureau typically is in such cases, its agents may find themselves competing for clues with members of Lulz Security hacking group.
In its offer to assist Sega, the Tweet from Lulz hinted that its leaders might count themselves among a small but highly loyal group of gamers who still play on the aging Dreamcast console.
"Sega - contact us," Lulz said in its Tweet to the video game developer. "We want to help you destroy the hackers that attacked you. We love the Dreamcast, these people are going down."
Lulz offered to see that the cyber criminals are punished for attacking Sega shortly after ending its own crime spree that included attacks on several other video game companies.
The Lulz hackers, who publicize their attacks on their own website and via Twitter, said on Friday that they had stolen customer records of some 200,000 users of the online video game Brink. Officials at Xenia Media, the developer of Brink, could not be reached for comment.
Lulz last week also attacked several other industry players, saying it was working on behalf of disgruntled players who had ordered the attacks via telephone hotlines that Lulz set up in the United States and Europe to solicit such requests.
Tribalware.net and EVE from Innogames were among the victims of the Lulz campaign against video game makers. The hacking group also attacked servers that help run two other online games -- "League of Legends" and "Minecraft" -- and it hit the The Escapist website, which provides video game news.
Lulz had hacked into Nintendo in an attack that it disclosed on June 3, but the incident has not appeared to have serious consequences for the company. The hacking group published a data file over the Internet that it said contained details on the way Nintendo set up one of its web servers.
Such data could be valuable to other hackers planning future attacks on Nintendo because the data potentially could leave clues as to possible security weaknesses in the game maker's network.
Copyright 2011 Thomson Reuters. Click for restrictions.
The nation’s two biggest providers of reverse mortgages are no longer offering the loans, as the economics of the business have come under pressure.
Wells Fargo, the largest provider, said on Thursday that it was leaving the business, following the departure in February of Bank of America, the second-largest lender. With the two biggest players gone — together, they accounted for 43 percent of the business, according to Reverse Market Insight — prospective borrowers may find it more difficult to access the mortgages.
Reverse mortgages allow people age 62 and older to tap what may be their biggest asset, their home equity, without having to make any payments. Instead, the bank pays the borrowers, though they continue to be responsible for paying property taxes and homeowner’s insurance.
But the loans have increasingly become a riskier proposition. Banks are not allowed to assess borrowers’ ability to keep up with all their payments, and more borrowers do not have the wherewithal to stay current on their homeowners’ insurance and property taxes, both of which have risen in many parts of the country. At the same time, borrowers have been taking the maximum amount of money available, often using it to pay off any remaining money owed on the home. Yet home prices continue to slide.
“We are on new ground here,” said Franklin Codel, head of national consumer lending at Wells Fargo. “With house prices falling, you reach a crossover point where they owe more than the house is worth and it creates risk for us as mortgage servicers and for HUD.” He was referring to the Department of Housing and Urban Development, whose Federal Housing Administration arm insures the vast majority of these loans through its Home Equity Conversion Mortgage program.
As a result, banks are seeing a rise in what are known as technical defaults, when homeowners fall behind on their taxes or homeowner’s insurance, both of which are required to avoid foreclosure. According to Reverse Market Insight, about 4 to 5 percent of active reverse mortgages, or 25,000 to 30,000 borrowers, are in default on at least one of those items.
Bank of America, meanwhile, said that declining home values made fewer people eligible for reverse mortgages. So it decided to redeploy at least half of those working on the mortgages to its loan modification division, which has been criticized for failing to help enough homeowners on the brink of foreclosure.
For Wells Fargo, however, the inability to assess borrowers’ financial health was the biggest factor for exiting the business. Anyone over the age of 62 with enough home equity can take out a reverse mortgage, regardless of their other income. The amount of money received is determined by the borrower’s age, the amount of equity in the home and prevailing interest rates.
“We are not allowed, as an originator, to decline anyone,” added Mr. Codel of Wells Fargo. We “worked closely with HUD to find an alternative solution and we were unable to find one with them, which led to this outcome.”
Reverse mortgage borrowers are required to pay premiums for mortgage insurance, which protects the lender if the homes are ultimately sold for less than the mortgage value, since the government is required to pay the difference to the lender. The premium rates were increased last October to account for declining home values (though one sizable upfront mortgage premium was eliminated to make the loans more attractive to certain borrowers).
But lenders are responsible for making tax and insurance payments on behalf of delinquent borrowers until they submit an insurance claim to HUD, at which point the agency would be responsible since it provided the insurance against default.
In January, HUD sent a letter to lenders and reverse mortgage counselors that provided guidance on how to report delinquent loans to the agency, and what steps the lenders could take to get borrowers back on track, like establishing a realistic repayment plan that could be completed in two years or less, or getting a HUD-approved mortgage counselor involved to help come up with a solution. If one cannot be reached, the lenders must begin foreclosure proceedings.
Both Wells Fargo and Bank of America have said they have not foreclosed on any borrowers to date.
The National Reverse Mortgage Lenders Association, the industry group, said it has been working with HUD to come up with procedures that would allow lenders to assess a prospective borrower’s income and expenses, or at least require homeowners to set aside money to pay for taxes and insurance. A spokeswoman for HUD said the guidance is still being drafted.
As it stands now, borrowers are required to see a HUD-approved lender before they can apply for a reverse mortgage. As part of that process, consumers are educated on the nuts and bolts of how the loans work and what their responsibilities are, including that they need to be able to continue to pay taxes, insurance and keep the property in good repair.
“We don’t tell consumers what decision to make, but we do try to give them the tools to make a decision,” said Sue Hunt, director of reverse mortgage counseling at CredAbility, a nonprofit consumer credit counseling agency. She added that their sessions last about an hour and 15 minutes, on average. The counselors also look at the consumer’s budget to see if it is sustainable with the mortgage, as well as what circumstances might arise that could throw the borrower off track.
“Outside factors are affecting people who thought five or six years ago that they were in pretty good shape,” she added. “The world has changed a bit around them.”
In days past, the borrower would get the reverse mortgage, and equity would continue to build, experts said, which would provide borrowers with more options — like refinancing — should they fall on hard times. Declining home values have changed that calculus for both bankers and consumers. Borrowers have not been able to pull out as much money. At the same time, the government has also tightened its withdrawal limits.
There were a total of more than 50,000 reverse mortgages, totaling $12.66 billion, made industrywide since last October, according to HUD.
Both Wells Fargo and Bank of America will continue to service their existing reverse mortgages. And the reverse mortgage association has said it will work with its members to ensure that senior citizens who need the loans can get them, though some experts said that less competition could increase certain fees.
“There is a certain amount of the business done by Wells and Bank of America that happens because of their bank branches, brand names and large sales forces,” said John K. Lunde, president of Reverse Market Insight. “We would expect something more than half of their volume to be absorbed by the rest of the industry, with something less than half not happening.”
Wells Fargo, which said that reverse mortgages represented 2.2 percent of its retail mortgage business, employs about 1,000 reverse mortgage workers. They are being given a chance to find other positions at the bank. Bank of America said that about half of its 600 workers have been reassigned within the bank. MetLife, the third-largest provider of reverse mortgages, declined to comment on its business.
This story originally appeared in The New York Times
Technology Headlines for June 16 2011 ( Wednesday ) !!
1. The CIA's website was hacked late yesterday in the latest spree of disruption by hacktivists LulzSec. The intelligence agency's site was apparently crashed for a couple of hours by a DDoS attack--suggesting numerous computers were involved in tackling such a high-profile government asset, and one supposedly connected to high security.
2. More evidence has emerged about Facebook's plan to take on apps like Instagram with its own photo sharing app, but now there's a rumor the site is targeting Apple with Project Spartan--an HTML5-architecture app and an app front-end for its social networking site. Though the rumor may be overstated, and an HTML5 Facebook would work on most modern browsers, there is intrigue that Facebook may be attempting to counter the Apple-Twitter tie-up.
3. Senators Al Franken and Richard Blumenthal have concluded investigations into perceived issues with digital user privacy, motivated by the highly misunderstood "locationgate" affair, and have proposed a new bill that would require companies like Apple and Google (and their teams of app developers) to obtain explicit consent before gathering or sharing location data. Franken quoted concerns from an anti-domestic violence group, among others, about location data issues.
4. RIM's attempt to steal some of the tablet market has been dealt a big blow in the U.K.: One of the nation's biggest networks, O2, has refused to carry the BlackBerry PlayBook tablet after test consumer groups found there were big issues in the "end to end" customer experience. This could be a reference to the missing features in the first release, including an email client.
5. New York's Mayor Bloomberg has made a loud, bold request, one of the biggest yet, for reform of U.S. immigration laws. In Bloomberg's mind it's all about future technology, highly educated foreigners, and entrepreneurs with a pile of startup cash. Reform is long overdue he thinks, noting in a statement that "today, we may have turned away the next Albert Einstein or Sergey Brin. Tomorrow, we may turn away the next Levi Strauss or Jerry Yang."
( Source: Fast Company )
Biodel Inc ( NASDAQ:BIOD ), stock jumped more than 20% after yesterday's sharp sell off in the stock. No announcements from the company regarding any development. Big players might preparing for upcoming news events as there might be a positive developments.
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| Biodel Inc |
WPCS International Incorporated ( NASDAQ: WPCS ) to get an offer to be acquired by Multibrand Corporation at $3.20 per share. Stock jumped more than 30% to $2.90 and might see a little further upside to close to $3.20 before the end of trading session.
Below is the News from Reuters
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| WPCS International Inc |
Parkvale Financial Corp ( NASDAQ: PVSA ) to be acquired by F.N.B. corporation at approx. $22.48 per share. Stock was trading at $20 and there isa little room for more upside in the stock.
Below is the News From Reuters
F.N.B. Corporation and Parkvale Financial Corporation jointly announced the signing of a definitive merger agreement pursuant to which F.N.B. Corporation will acquire Parkvale Financial Corporation, in an all stock transaction valued at approximately $22.48 per share, or $130 million in the aggregate. Under the terms of the merger agreement, which has been approved by the boards of directors of both companies, shareholders of Parkvale Financial Corporation will be entitled to receive 2.178 shares of F.N.B. Corporation common stock for each share of Parkvale Financial Corporation stock. The exchange ratio is fixed and is expected to be a tax-free exchange for shareholders of Parkvale Financial Corporation. .B. Corporation and Parkvale Financial Corporation expect to complete the transaction in the fourth quarter of 2011. Subject to the receipt of requisite approvals, it is expected that Parkvale Financial Corporation will redeem all of its preferred stock held by the U.S. Treasury under the Capital Purchase Program prior to closing or extinguished upon closing of the merger
