Sub Prime Mortgages

U.S. municipal borrowers pushed down yields on auction-rate bonds to the lowest in 11 weeks by moving to eliminate at least $56.5 billion, or 34%, of the debt they had in the market. Local governments disclosed plans to redeem about 150 tax-exempt auction issues totaling $8.3 billion last week, according to investment bank Siebert Brandford Shank & Co. That's the most since the $166-billion municipal auction market began falling apart in February, the firm said. States, cities and hospitals are replacing the securities and bidding for their own bonds at auctions that set yields to cut interest costs that rose as high as 20%. The average rate on bonds reset weekly fell 2.55 percentage points to 4.34% from a record 6.89% on Feb. 20, a Securities Industry and Financial Markets Assn.

Ambac Financial Group Inc., the world's second-largest bond insurer, has backed eight new issues in the municipal bond market since it raised capital to safeguard its credit ratings. The company said it insured a $46.8-million lease financing deal for the city of Compton and a $62-million Alaska Municipal Bond Bank issue. Ambac, and competitors such as MBIA Inc., stumbled after expanding from backing debt issued by cities and states, which rarely default, to insuring securities backed by sub-prime mortgages.

The Federal Bureau of Investigation has ordered more than two dozen of its field offices to stop probing some financial crimes to focus on a surge in sub-prime mortgage fraud. Kenneth Kaiser, chief of the bureau's criminal investigative division, issued the directive late last week in a video conference call with the heads of 26 offices in areas where mortgage crime is rampant, said Bill Carter, an FBI spokesman in Washington.

A key Senate committee Wednesday killed or greatly watered down a series of Assembly bills that would have imposed new regulations on sub-prime mortgages in an attempt to curb the worst wave of foreclosures since the Great Depression. The measures, part of a package launched with fanfare last winter by the Assembly leadership, sought to protect Californians from getting stuck with loans they couldn't afford and didn't understand. Sen.

Angelo R. Mozilo struggled last week to bid farewell to No. 1 home lender Countrywide Financial Corp., the company he led for 39 years only to see it toppled by misadventures in high-risk mortgages. The usually silk-smooth Mozilo garbled words and at one point knocked over his microphone at a special shareholder meeting. Looking grim and sounding resigned, he said the era of independent home lenders like Calabasas-based Countrywide was at an end.

The Federal Reserve clamped down hard on mortgage lenders Monday, issuing rules designed to curb the sorts of risky and deceptive lending practices that helped trigger the subprime mortgage crisis. The Fed's action, although criticized by some for not going far enough, was widely seen as a crucial step in reasserting control over a financial market that had been allowed to run wild. "There's lots more to come," said Thomas Lawler, a former Fed official who is now a housing market consultant.

Countrywide Financial Corp., which faltered earlier this year under the weight of soured mortgages, made a practice of doling out bonuses to employees who sold risky loans, California officials alleged in an amended lawsuit Thursday. The allegations expand charges made in a suit filed by Atty. Gen. Jerry Brown against Countrywide and several of its top executives in June.

One of the biggest construction workers unions on Thursday warned of more housing problems ahead -- particularly for borrowers living in new-home communities -- and lays much of the blame on the nation's home builders. Homeowners who purchased at newer developments are more likely to have 100%-financed, adjustable-rate mortgages because of builders' efforts to push risky subprime loans, according to a report from the Laborers' International Union of North America.

The regulators operating failed IndyMac Bank said Wednesday that they would try to modify about 25,000 troubled mortgages by slashing interest rates to as low as 3% for five years, extending payments over 40 years and in some cases charging interest on only part of the loan balance. The plan, aimed at about 37% of IndyMac's seriously delinquent borrowers, is the start of a modification program that eventually could involve thousands of other borrowers at the savings and loan.

Lawmakers, housing advocates and both presidential candidates are demanding that any bailout for financiers on Wall Street needs to help homeowners on Main Street too. But it's easier said than done. The main proposals for helping struggling homeowners call for allowing the federal government to restructure mortgages it would buy under the Bush administration's $700-billion bailout plan, and to give bankruptcy judges new powers to force lenders to accept revised home loans.