By Moe Bedard

While the cramdown bill dies, providing evidence of our representative’s willingness to sell us out, some may say that our representatives have already passed legislation to help Main Street like the foreclosure bill and the Hope for Homeowners plan. Whereas it may seem like these two programs are designed to help us, upon further analysis I think most people will understand that they were, and are designed to shield lenders from greater problems. Political slight of hand is always an interesting topic and as it pertains to the foreclosure prevention plan here’s how it works:

The legislature, working closely with major lobbyists, designs a program that lenders will sign off on and in exchange provides clauses in these bills to shield the entities that caused these problems from greater damage. Today, Mish’s Global Economic Trend Analysis explained that the Obama administration was rolling out more help for homeowners in foreclosure in that second mortgage loan modifications will now be incentivized and subsidized with tax payer money in exchange for more protection for the major banks.

If a bank signs on to the government plan, they may be shielded permanently from lawsuits over fraudulent or predatory loans. So…we give the banks more money (taxpayer money), the banks have to follow government guidelines that do not specify every loan in their portfolio must be modified and in exchange these banks that made bad loans will never have to face a court of law for providing billions of bad loans to unsuspecting consumers.

There’s the slight of hand for you ladies and gentlemen. Perhaps we’re already aware that this has been happening for a long time but has it really been this bad or this blatant? I’m not so sure.

From Mish’s Global Economic Trend Analysis:

Under the new plan, lenders would receive $500 for modifying the second mortgage, plus $250 a year for three years if the loan remains current. The borrower would be eligible for $250 a year for five years to lower their principal balance. The borrower could have the interest rate lowered to 1 percent, depending on the type of loan, with the government sharing the cost of the rate reduction.

“The safe harbor provision protects mortgage servicers from lawsuits alleging misconduct in the past and future,” said Micah Green, a Patton Boggs lobbyist.

JPMorgan Chase earns $2.1 billion

Although profits fell 10% from a year ago, earnings still beat expectations. CEO Jamie Dimon said bank is strong but added that bank may boost credit reserves.

CNNMoney.com staff writer

JPMorgan Chase chief Jamie Dimon

Shares of JPMorgan Chase have recovered sharply from lows reached in early March.

NEW YORK (CNNMoney.com) — JPMorgan Chase reported a better-than-expected profit of $2.1 billion in the latest quarter, even as the bank aggressively set aside money to cope with rising loan losses, the company said Thursday.

The New York City-based bank said its net income for the first quarter was $2.1 billion, or 40 cents a share. Profits were down 10% from a year ago, but still handily beat expectations.

Analysts were anticipating JPMorgan Chase to record a profit of $1.38 billion, or 32 cents a share, for the quarter, according to Thomson Reuters.

Bolstering the bank’s results were both its consumer and investment banking divisions, but JPMorgan Chase also logged $10 billion in credit costs during the quarter, which included a $4 billion addition to its loan loss reserves.

JPMorgan Chase CEO Jamie Dimon warned that this number could go higher if the recession intensifies, but added that he was comforted by his firm’s robust capital levels.

“These levels of capital and reserves, combined with our significant pre-provision earnings power, enable us to withstand an even worse economic scenario than we face today,” Dimon said in a statement.

As of the end of the quarter, Chase’s Tier 1 capital ratio, a key measure of a bank’s ability to absorb losses, stood at 11.3%. Not including the $25 billion that the Treasury Department injected into the firm in October, Chase’s Tier 1 ratio was 9.2%. A Tier 1 ratio above 8% is generally considered healthy.

JPMorgan Chase is among a handful of banks that have hinted at their interest in repaying taxpayer funds they received from the Treasury’s Troubled Asset Relief Program, or TARP, given the increasing restrictions imposed on banks participating in government rescue programs.

Goldman Sachs announced earlier this week that it would sell new stock to help pay back the government. During a conference call with analysts and investors Thursday morning, Dimon said that Chase would like to repay TARP money “as soon as possible.”

He added that the company was waiting for the results of the stress test that regulators are conducting on Chase and other big banks, and guidance from the government before proceeding with a return of taxpayer funds.

Dimon also said that, unlike Goldman Sachs, he did not think Chase would have to raise more capital in order to pay back the TARP money.

“I don’t see why a company with [our] kind of capital would need to raise capital,” he said.

Dimon added that his firm had no intention of participating in the Treasury Department’s soon-to-be launched Public-Private Investment Program, or PPIP. That program will allow banks to sell troubled loans or securities to investors partnering with the government.

Dimon told investors Chase was not concerned about whether the program would be effective. Instead, he said the bank did not want to be any more dependent on the government than it already is.

Banks that have taken taxpayer money have come under intense scrutiny of their compensation practices and overall spending habits in recent months.

“We are certainly not going to borrow from the federal government,” he said. “We have learned our lesson about that.”

Investment banking bounces back, cards take a hit

Delving deeper into the results, Chase’s investment banking division came roaring back from a loss in the fourth quarter and posted a profit of $1.6 billion.

The strong investment banking performance was driven by a revenue surge in its fixed income division, which reported record results in some of its operations including foreign exchange and emerging markets.

Those results mirrored numbers put up by rival Wall Street firm Goldman Sachs (GS, Fortune 500), which reported a much-better-than-expected $1.8 billion profit earlier this week.

The disappearance of Lehman Brothers and absorption of Merrill Lynch by Bank of America has benefited both firms, but many analysts are already wondering whether their respective investment banks can maintain this pace.

“Both of those banks took market share,” said Richard Staite, a London-based banking analyst with Atlantic Equities who tracks the company. “The question is how sustainable that revenue source is going forward.”

Also contributing to Chase’s overall profit for the quarter was its retail financial services and commercial banking divisions, but those gains were offset in other areas.

Chase’s credit card division, for example, reported a net loss of $547 million, down from a profit of $609 million a year ago. The bank cited a sizable increase in allowances for loan losses and higher charge-offs, or loans the company doesn’t think are collectable.

“This unit, to no one’s surprise, is showing large losses,” said Bart Narter, an analyst for the Boston-based financial research and consulting firm Celent.

Despite facing the threat of rising credit costs, Dimon maintained that the bank was financially strong enough to weather the current downturn, and is well-positioned for an eventual recovery.

0:00 /4:49Roubini’s ‘bad banks’ solution

The bank also noted that it was making “excellent progress” with its late September purchase of failed Seattle-based lender Washington Mutual.

Chase has been working hard to integrate WaMu’s assets, including its nationwide retail branch network. Chase said that it had total branches of just under 5,200 as of the end of the quarter, down from 5% from late last year as it consolidated some Chase and WaMu locations.

Chase’s encouraging results come on the heels of impressive numbers put up in the last week by two of its biggest rivals – Goldman Sachs and Wells Fargo (WFC, Fortune 500).

Both companies shattered Wall Street’s earnings forecasts, with San Francisco-based Wells Fargo adding last week it expected to book a record profit of $3 billion in the latest quarter.

Following Chase’s report, investors’ eyes will now turn to two of the nation’s most embattled banks – Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500). Citi and BofA are slated to report their first quarter numbers Friday and Monday respectively.

Shares of JPMorgan Chase (JPM, Fortune 500), which are up more than 50% from lows reached earlier this year, rose more than 3% in early morning trading. 

First Published: April 16, 2009: 6:53 AM ET

 

Wells Fargo said Thursday it expected to book a profit of approximately $3 billion in the most recent quarter, exceeding Wall Street expectations.

Wells Fargo shares soared on the news, climbing 20% in pre-market trading.

Originally slated to deliver its results later this month, the San Francisco-based banking giant issued guidance for the first quarter, saying it expected to report net income of about $3 billion, or 55 cents per common share.

That is well ahead of analysts’ consensus estimates for a profit of 28 cents a share, according to Thomson Reuters.

Wells Fargo attributed the latest results to strong performance in its traditional banking and mortgage businesses.

“Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group,” Wells Fargo CEO John Stumpf said in a statement.

Several other bank stocks shot higher on the news. Shares of JPMorgan Chase climbed 4% in pre-market trading while Citigroup was up 7%. Bank of America shares were up nearly 9%.

JPMorgan Chase and Citi are expected to report their first-quarter results next week while BofA is scheduled to release its results on April 20.

SOUTH BEND, Ind. — Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.

For older industrial cities like South Bend, hard times in the mortgage market began before the recent national downturn, as did the problem of bank walkaways. In the case of Ms. James, a home health care administrator, the foreclosure proceedings began in the summer of 2007, when she could not keep up with the adjustable rate on her mortgage

For the first time in recent memory the markets seem to be rebounding from record losses. In an effort to continue the sustained improvement of the economy the Fed recently announced a plan to buy $300 million in T-Bills and as much as $1.45 trillion of toxic mortgage debt. The plan is aimed to get banks to start lending money again…the same goal of all previous government stimulus packages.

Long term interest rates immediately dropped after the announcement and, of course, Wall Street applauded the Fed’s continued efforts to improve economic conditions. The question still remains, however, whether the Fed’s strategies will sustain positive economic growth or if printing more money will only result in short term economic improvements.

Bloomberg:

Yesterday’s decisions will add $750 billion in purchases this year of mortgage-backed securities issued by government- sponsored enterprises Fannie Mae, Freddie Mac and Ginnie Mae, for a total of $1.25 trillion. The Fed has already announced $217.1 billion in net purchases out of $500 billion planned through June, under a program unveiled in November.

The central bank will also double to as much as $200 billion this year its planned purchases of debt issued by Fannie Mae, Freddie Mac and Federal Home Loan Banks. The Fed bought $44.4 billion of the so-called agency debt as of March 11.

Policy makers acted after the economy worsened since they met in January. Reports today added evidence of a deepening recession. The Conference Board’s index of leading indicators, a measure of the economy’s future performance, fell 0.4 percent in February. The Labor Department said the number of Americans receiving unemployment benefits surged to a record 5.47 million.

NEW YORK (CNNMoney.com) — The Federal Reserve announced Wednesday it would buy $300 billion of long-term Treasurys over the next six months in order to try and get credit flowing more freely again.

The Fed also announced plans to buy an additional $750 billion in mortgage-backed securities, a move designed to lower mortgage rates.

The Fed suggested it was planning to buy Treasurys in statements issued after the two previous meetings of the Federal Open Market Committee, the policymaking committee of the Fed that sets interest rates. So Wednesday’s announcement, which came at the conclusion of the FOMC’s latest meeting, was not a major surprise.

Still, stocks turned higher on the news. Bond prices also surged, causing yields on longer-term Treasurys to fall sharply. The rate on the 10-year note fell about 0.3 percentage points immediately after the news to about 2.6%, while the yield on the 30-year note also fell 0.3 percentage points to around 3.6%.(Bond prices and rates move in opposite directions.)

The Fed also left interest rates unchanged at a range of 0% to 0.25%. Interest rates have been near zero since December.

The rally in stocks came even as the Fed warned in its statement that the U.S. economy has gotten worse since its last meeting in January. The central bank pointed to further job losses, declines in the value of stocks and homes, tight credit conditions and weak consumer sentiment and spending.

While the government reported the biggest jump in its key inflation reading earlier in the day Wednesday, the Fed said in its statement it believes that inflation would remain “subdued.”

Instead, the Fed expressed more concern about deflation, in which falling prices lead businesses to further cut their output and employment. In its statement, the Fed said it “sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”