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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
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Monday Morning Cup of Coffee: Feds pursue BofA, predictions on tapering

September 23, 2013

Monday Morning Cup of Coffee takes a look at stories across the HousingWire news desk, with more coverage to come on bigger issues.

Starting off the first week of fall, the government is pursuing a courtroom test on allegations that banks defrauded investors by selling them defective mortgages. The courtroom battle starts on Tuesday, an article in the Financial Times explained.

The U.S. attorney’s office in Manhattan brought civil charges against Bank of America (BAC) and Countrywide Financial, the mortgage lender it acquired in 2008.

This case is the first to not settle before reaching a jury, mostly since it utilized the novel statue, the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

“FIRREA empowers the U.S. to bring civil charges against any actor that has committed certain crimes ‘affecting a federally insured financial institution’. The law is a powerful tool for the government because it has a 10-year statute of limitations and potential for significant penalties,” the article stated.

The industry braced itself for tapering in September, but to everyone’s relief, it did not happen. Now, Greg Reiter, head of residential mortgage research at Wells Fargo, tossed in a new month to watch for Fed tapering: December.

“There is also a good probability that it could be in 2014. With this, we are modestly positive on the basis from a tactical standpoint over the near term; however, we continue to believe there is asymmetric risk wider for spreads longer term as we head toward an eventual QE tapering and a moderation of the Fed demand technical,” Reiter said in a press release on agency mortgage-backed securities.

Furthermore, Reiter explained that investors still need to tread cautiously, taking a balanced approach to asset allocation and security selection.

The constant fluctuation of the Federal Reserve has created a stock bubble of sorts, with the most recent decision to continue bond buying inevitably popping it, an article from CNBC said.  

"Bubbling his way out of trouble," is the way Michael Hartnett, the chief market strategist at Bank of America Merrill Lynch, termed Fed Chairman Ben Bernanke's approach to the market in the article.

“Hartnett's analysis was not so much that the bubble had been breached, but rather a suggestion that perhaps all the Fed accommodation had caused a bubble with which Bernanke was happily compliant,” the article noted.

The lack of reliable communication and loose Fed policy created the bubble, and it will continue to if not resolved.

With America’s mom and dad fighting, the kids will have to pay the price. If the House, Senate and White House do not come to an agreement by Sept. 30, large functions of the federal world could shut down on Oct. 1.

Over the past 17 years, Congress has not met its statutory deadline for approving spending bills and has shut down a handful of times, with one lasting 21 days, an article in The Washington Post said.  

This time, the confrontation is over the conservative Republican effort to defund the Affordable Care Act and is considered to have no chance of passage in the Democrat-controlled Senate.

In the mean time, the Obama administration told agencies to begin planning for a partial shutdown and to be prepared for the possibility of a lapse.

It’s up to Congress and the White House to decide when the shutdown will end, but there is no doubt there would be plenty of pressure from the public and workforce.

The Federal Deposit Insurance Corp. did not close any banks during the week ending Sept. 20.

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