Trial Set for Army Corp of Engineers Over Katrina Liability

Six flood victims are blaming the Army Corp of Engineers for failing to properly maintain the Mississippi River Gulf Outlet. The outlet is a channel that could have helped drain the flood that submerged New Orleans after the hurricane.

A Federal judge, U.S. District Judge Stanwood Duval, ruled on Friday that the trail could go forward.

The Army Corp of Engineers tried to argue that they couldn't be sued.

The plaintiffs argued that for more than 50 years the Corp has been warned by experts, environmentalist, and government officials that the channel was a “Hurricane Highway” leading right to the heart of New Orleans.

The next round is scheluded for April 20. If you are interested in reading the judge's ruling go get it.

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Wells Fargo May Cut Loans for Some Wachovia Customers

Ok. Let me get this straight.

Wells Fargo & Co., the second-biggest U.S. home lender is offering to cut mortgage balances for some of Wachovia Corporation customers by 20 percent.

So if I have a $500,000 mortgage I can get my mortgage balance reduced to $300,000. I'm in. Well, probably not.

While the terms are still a bit sketchy this is coming in response to the pressure to modify loans due to rising default levels. You have to be in default to get the 20 percent free lunch.

Wells Fargo’s pilot program aimed at Wachovia borrowers is part of a plan announced on Jan. 26 to help avoid “preventable foreclosures.” As many as 478,000 Wachovia customers have access to the wider program and those who are in or at risk of foreclosure have until Feb. 28 to contact the bank. Customers may also win reduced interest rates and extensions of up to 40 years.

Well what about people that have been making their payments for say the last ten years? No free lunch?

Speaking of free lunches. Wells Fargo bought Wachovia for a song. Wells did have to eat about $60 billion of Wachovia's impaired loans. These are the option adjusted loans that I wrote about previously--Option ARM--The Toxic Mortgage.

I'm not an accountant or a "rocket scientist" but I can make some intelligent guesses here. Wells has an immediate tax angle. They write down these mortgages and get a monster tax shelter. They can then start selling the good assets they picked up in the takeover--at cents on a dollar-- and pay not a cent in tax. At the end of the day they look like champions for saving the butt of the dumbest investors on the planet--

people who took out an option arm on the advice of a so called mortgage specialist that just a few months earlier was a dishwasher.

Wells gets bail out money. They get a forced sale of Wachovia at a rock bottom price thanks to government pressure. We the public get to finance all of this with our tax dollars.

Isn't it bad enough that we, the taxpayers, are getting screwed coming--bank bailout. Then, get screwed going--tax benefits built into the transaction.

And now the worst of all, if you have been busting your butt making your house payment for the last decade here is what you get--bumpkiss.

I don't know about you but I want a free lunch. No make that--dinner.

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Wells Fargo May Cut Loans for Some Wachovia Customers

Wells Fargo & Co., the second-biggest U.S. home lender, offered to cut mortgage balances for some Wachovia Corp. customers by 20 percent as defaults rise and officials pressure banks to modify loans to avoid foreclosures.

Wells Fargo mailed letters to those borrowers, asking for proof of current income and a 2007 income-tax statement, bank spokeswoman Debora Blume said today in an e-mail. Customers are provided a number to call to speak with a consultant. Wells Fargo didn’t say how many customers received the letter.

“We are encouraged by the response we are getting to our outreach efforts, as it means we will be able to help more people with a solution that works,” Blume wrote.

Regulators and lawmakers are pressing the nation’s biggest lenders to pick up the pace of loan workouts after foreclosures soared 81 percent in 2008. San Francisco-based Wells Fargo inherited billions of dollars in future losses when it bought Wachovia for $12.7 billion. Wells Fargo said last week that Wachovia’s option adjustable-rate mortgage portfolio has close to $60 billion of impaired loans.

Wells Fargo rose $2.87, or 18 percent, to $19.14 at 4:05 p.m. on the New York Stock Exchange, reducing its decline for the year to 35 percent.

Citigroup Agrees

Citigroup Inc., the New York-based bank that received a $346 billion government bailout, bowed to pressure from U.S. Senators Richard Durbin and Charles Schumer and agreed to support “cram- down” legislation that allows bankruptcy judges to cut borrowers’ mortgage principal. Other banks have opposed the plan, saying foreclosures can sometimes minimize write-offs, and undeserving borrowers may seek relief.

Wells Fargo’s pilot program aimed at Wachovia borrowers is part of a plan announced on Jan. 26 to help avoid “preventable foreclosures.” As many as 478,000 Wachovia customers have access to the wider program and those who are in or at risk of foreclosure have until Feb. 28 to contact the bank. Customers may also win reduced interest rates and extensions of up to 40 years.

“It’s very positive that they are willing to look at principal reductions but they need to extend a moratorium for these borrowers” beyond the February deadline, said Kevin Stein, associate director of the California Reinvestment Coalition in San Francisco. “Wells needs time to implement the program.”

After purchasing Wachovia, Wells Fargo controls 16 percent of the mortgage-servicing market, behind Bank of America Corp., with 19 percent, according to trade publication Inside Mortgage Finance. JPMorgan Chase and Co. accounts for 14 percent and Citigroup has 7 percent. Wachovia loans resulted in Wells Fargo’s first quarterly loss since 2001.

FDIC Chairman Sheila Bair endorsed a plan by President Barack Obama to boost spending on modifications. The agency created a “mod-in-a-box” program to help borrowers at least 60 days past due make payments by reducing interest rates, deferring principal or cutting payments.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.