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Archive for October 2011

Obama’s HARP Reprise Greeted with Praise and Skepticism

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Phil Hall, Mortgage Orb

The mortgage banking industry greeted President Obama’s announcement of changes to the Home Affordable Refinance Program (HARP) with a diversity of opinions that ranged from hearty praise to harsh criticism.
Leading the commendations was the National Association of Realtors (NAR), which praised the announced changes as being a step toward housing market stability.

"As the leading advocate for homeownership and housing issues, Realtors are supportive of HARP and any effort by the federal government to help more homeowners avoid foreclosure by making mortgage payments more affordable," says Sara Wiskerchen, senior public issues specialist at NAR. "Realtors have urged the government and lenders to take more aggressive steps to modify loans, and are optimistic that improvements to the HARP program will have positive implications for thousands of homeowners."

Also voicing support was Bob Dorsa, president of the American Credit Union Mortgage Association.
"I agree this is good news and should be more effective than the Home Affordability Modification Program, which did not evidently do too much," Dorsa says. "I also believe the timing is better, as the economic news seems to be slowly improving. Corporate profits are coming in above estimates and as long as global economics do not create any big surprises, I am crossing my fingers that 2012 will be the beginning of a return to prosperity."

"These enhancements will not only help responsible homeowners who have been unable to refinance because the equity in their home has disappeared, but it will also help spur the economy by allowing homeowners to reduce their monthly payment, thus allowing homeowners to spend the extra savings on much-need household expenses to spur the economy," says Michael D’Alonzo, president of the National Association of Mortgage Brokers.

Andrew Peters, CEO of First Guaranty Mortgage Corp., based in McLean, Va., was also supportive. "We’re excited – this is a step in the right direction," he says. "What we’re seeing will open up a lot more opportunity for borrowers to refinance."

Less than 100% certain

However, a number of industry leaders tempered their enthusiasm with a degree of caution in regard to some significant changes to HARP. Ruth Lee, executive vice president at Denver-based Titan Lenders Corp., expressed surprise at the removal of the loan-to-value cap and the waiving of certain representations and warranties for lenders, noting this will dramatically alter how the program operates. "As always, the devil will be in the details – or the implementation, as it were," she says.

"I think what Obama is doing is a good attempt," observes Brian C. Coester, CEO of Rockville, Md.-based Coester Appraisal Group. "However, these things never really seem to work out the way they are supposed to. Ideally, we would be able to see borrowers who are underwater refinance into a better rate, which would lower the overall risk of the loan. But we will have to wait and see."

For some, however, it seems that the proposed changes do not go far enough.
"Making more borrowers eligible for refinancing their mortgages by enhancing HARP will give a badly needed boost to consumer confidence," says Bob Nielsen, chairman of the National Association of Home Builders and a home builder from Reno, Nev. "However, for the many families who have fallen behind in their payments because of the weak job market, the changes to HARP will have no benefit. HARP is only open to mortgage borrowers who have remained current with their payments. Clearly, additional policy initiatives are urgently needed to prevent foreclosures and deal with the inventory of foreclosed homes.

"In addition," he continues, "it is essential to address overly restrictive mortgage lending standards, inappropriate credit limitations on home builders and a broken appraisal system that is contributing to housing price instability. All of these factors are detrimental to the full-scale housing recovery. We need to rally consumers and get a disappointing economic recovery moving forward."

"We think it’s an improvement, but it’s not a magic bullet," says Kathleen Day, spokesperson for the Center for Responsible Lending. "We also need loan mods for people who are near or in the foreclosure process, with principal write downs, strong servicing standards and changes to bankruptcy laws so that bankruptcy judges could modify mortgages on primary residences – as they can now do on every other contract, including vacation homes, commercial property and yachts. The government-sponsored enterprises should also lease real estate owned property and give loan mods with principal reductions – doing so would be cheaper for taxpayers."

"With some tweaking, it could be a very effective program," says Marc Saivatt, president of the National Association of Independent Housing Professionals, adding that he is concerned that the plan’s consideration of automated valuation models (AVMs) was risky. "I have yet to see a reliable AVM. Even Fannie Mae, on their website, admitted problems with AVMs."

Saivatt also wonders whether the updated plan could be extended to include newer homeowners. "The proposal is only good for property up to 2009," he says. "It needs to be extended to the present day. There are people out there with interest rates in the fives who could get interest rates in the threes."
Richard Rydstrom, chairman of the Los Angeles-based Coalition for Mortgage Industry Solutions, experienced a sense of deja vu in yesterday’s news.

“Here we go again!" says Rydstrom, with a sigh. "The original restructuring and HARP goals were 7 million to 9 million. As part of this plan, the Treasury Department announced a national modification program aimed at helping 3 million to 4 million at-risk homeowners – both those who are in default and those who are at imminent risk of default – by reducing monthly payments to sustainable levels. We will never reach those levels unless we actually relax the requirements to meet the new reality: many more people are either in default, underwater, suffering from lower FICO scores and have experienced lower incomes than originally estimated. The HARP-eligibility pie, in terms of the actual market consumer, has become smaller and smaller over the course of this recession."

While Rydstrom expressed support for several aspects of the program’s changes, he was particularly concerned about the new manner for determining homeowner eligibility.

"The program should base its criteria on verifiable ‘ability to pay’ rather than FICO scores, equity, or strict definitions of ‘current,’" he adds. "Borrowers with a verified ‘ability to pay’ who are granted principal reduction/forgiveness with claw-backs and public/private insurance guarantees can satisfy risk- and loss-based standards."

Playing politics?

The president’s announcement, which included statements on his not being able to wait for Congress to take the lead on the issue, prompted some industry leaders to question the political dimensions of the HARP changes.

"The re-tooled program can’t hurt and will lead to a short-term spike in refinancing," says Marx Sterbcow, managing partner with New Orleans-based Sterbcow Law Group LLC. "But its overall long-term effectiveness in stabilizing the housing market is going to be extremely tough. My preliminary thoughts call into question whether the big banks will participate. And if they do participate, will they allow their correspondents to participate as well? The politics involved in this may also come into play because the big banks want Dodd-Frank eliminated – so some big banks might not want to participate and help the Obama administration, because that means a failed HARP will help kill Obama’s re-election hopes." 

Dr. Peter Morici, former chief economist at the U.S. International Trade Commission and a professor at the University of Maryland’s Smith School of Business, believes the only genuine beneficiary of the changes is the president.

"This is all about getting past 2012 – not jump-starting the economy – and it could create yet another credit crisis for Obama or a future president to address," says Morici. "The president proposes to open the floodgate, like a political candidate promising the moon, but this time [he’s] delivering the cream cheese before the election and in a wholly irresponsible fashion. He proposes to let homeowners [who are] still up to date on their mortgages refinance – no matter how much the value of their home has fallen below what they owe, and without home appraisals and rigorous credit and income checks. That is a prescription for more failed loans and another crisis in mortgage finance down the road or huge losses for U.S. taxpayers that can only be accommodated by even bigger deficits and printing money."

Chris Sorensen, founder of the Los Angeles-based Homeownership Education Learning Program, agrees with Morici.

"It almost seems criminal to me that this administration, after almost two years of silence on the housing crisis, is now coming back to it so late," he says. "The cynic in me asks if it is because of the election. And if, as the president claims, he was forced to take action since Congress would not, what took him so long? If it was that easy, why the hell did he allow so many Americans to be punished for so long?"

Edward Mermelstein, principal at the New York law firm Rheem Bell & Mermelstein LLP, concurred by questioning whether more federal input was the right answer.

"Further regulatory intervention is unlikely to work," he says. "The market has shown itself to be resilient to any stimulus packages, and the likelihood of a self-correction is much greater than that of a continuing government intervention."


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October 25, 2011 at 5:06 pm

Mortgage Insurers Grapple with High Delinquency Rates

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Paragon Financial Limited, via Market Watch

The Paragon Report Provides Equity Research on PMI Group & Radian Group

NEW YORK, NY, Oct 25, 2011 (MARKETWIRE via COMTEX) — Mortgage Insurers continue to struggle as the aftermath of the recession and economic slowdown weighs on their recovery. Matthew Howlett, an analyst at Macquarie Group Ltd, argues that Mortgage Insurers probably won’t "be able to handle a sustained increase in delinquencies" that would come with another recession. The Paragon Report examines investing opportunities in the Property & Casualty Insurance Industry and provides equity research on PMI Group, Inc. PMI -14.58% and Radian Group, Inc. RDN -3.34% . Access to the full company reports can be found at:

Last month a report released by the Office of the Comptroller of the Currency revealed that the number of homeowners behind on their mortgages rose during the second quarter of 2011. Early-stage delinquencies, which count mortgages that are between 30 and 59 days delinquent, increased 0.4 percent in the second quarter, the report said. More serious delinquencies — mortgages that are 60 or more days delinquent — and delinquent mortgages to bankrupt borrowers also increased slightly in the second quarter after falling for the previous five quarters.

The Paragon Report provides investors with an excellent first step in their due diligence by providing daily trading ideas, and consolidating the public information available on them. For more investment research on the Property & Casualty Insurance industry register with us free at and get exclusive access to our numerous stock reports and industry newsletters.

High delinquency rates have plagued Mortgage Insurers. PMI Group said on Saturday that the main subsidiary of the company has been seized by Arizona insurance regulators, and will begin paying only 50 percent of claims. Under a court order obtained by Arizona regulators, "the Arizona Department of Insurance now has full possession, management and control of PMI," the company said in a brief statement.

The seizure of Arizona-based PMI Mortgage Insurance Co comes two months after two PMI units were ordered to stop writing new business due to their failure to meet capital requirements.

The Paragon Report has not been compensated by any of the above-mentioned publicly traded companies. Paragon Report is compensated by other third party organizations for advertising services. We act as an independent research portal and are aware that all investment entails inherent risks. Please view the full disclaimer at

SOURCE: Paragon Financial Limited

Copyright 2011 Marketwire, Inc., All rights reserved.

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October 25, 2011 at 3:47 pm

MGIC Weathering Mortgage Storm

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Paul Gores, Journal Sentinel

Although the private mortgage insurance industry continues to lose money amid the lingering foreclosure crisis, Milwaukee’s MGIC Investment Corp. is in far better condition than a competitor that was seized by regulators last week, analysts said Monday.

Claims on mortgage defaults had sapped capital at Arizona-based PMI Mortgage Insurance Co. to the point that regulators in that state took control of the company and ordered it to pay claims at only 50 cents on the dollar.

Mortgage insurers pay lenders part of their costs when borrowers default.

MGIC, which has not had a profitable year since 2006 and last Friday reported a third-quarter loss of $165.2 million, nonetheless is prepared to handle losses, analysts said.

"MGIC is clearly in a better position than PMI was," said Thane Bublitz, a financial industry analyst for Thrivent Asset Management in Appleton.

MGIC raised about $1 billion in new capital in 2010, and the parent company intends to contribute $200 million to its insurance operations. Company investor relations spokesman Michael Zimmerman said Monday that even under a more stressful scenario, MGIC would expect to have resources to be able to pay its mortgage insurance policy obligations.

In addition, the company has – and is seeking an extension of – waivers to ease capital requirements needed to write new business if its risk-to-capital ratio would no longer meet normal standards. MGIC also has in place a subsidiary which, if needed, could issue new policies while the current one handles policies already in its portfolio.

PMI had been under regulatory scrutiny as its capital fell, and was ordered by regulators in August to stop selling new policies.

Jim Ryan, an analyst with Morningstar Inc. in Chicago, said MGIC is "certainly nowhere near as bad off as PMI was even three months ago."

As competitors are restricted from issuing new mortgage insurance, a stronger company such as MGIC could benefit, Ryan said. New policies are desirable because they provide new revenue and, under today’s restrictions, are less risky than those from the mid-2000s that continue to go into default.

"These are all things that work in their favor," Ryan said.

Still, how MGIC fares in the long run depends on the duration of the downturn in housing, analysts said. MGIC doesn’t appear to need additional capital at the moment, but could down the road, they said.

"If the housing market doesn’t stabilize and start improving, then that’s when they may get into trouble," Bublitz said.

He noted, however, that "fundamental trends" have been improving for MGIC.

While Ryan stressed that MGIC isn’t in the same boat as PMI, he said the housing market remains in a malaise – something MGIC can’t control. He said "it’s possible, but it’s not inevitable" that MGIC would need to raise additional capital.




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October 25, 2011 at 3:38 pm

Re-Stringing the Housing HARP

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David Reilly, Wall Street Journal

The government’s latest move to bolster housing marks yet another transfer from savers to borrowers.

Such transfers have been the norm since the Federal Reserve instituted its zero-interest-rate policy in late 2008—shifting funds away from the likes of depositors, bondholders and pension funds to debtors. The latest iteration came Monday, when the Federal Housing Finance Agency unveiled changes to a program meant to make it easier for underwater homeowners who are current on payments to refinance into a lower-rate mortgage.

The thinking is that this will reduce defaults. Or as FHFA said, "Such refinances bring benefits to borrowers, to housing markets, and to [Fannie Maeand Freddie Mac] and taxpayers."

Missing from that winners’ list: investors who finance housing markets by purchasing mortgage-backed bonds. They will fund this new effort. Here is how: As homeowners refinance, investors who bought mortgage bonds will be given back their money and will have little option but to reinvest at far lower yields. The transfer is the difference in yield.

Just how big that will be isn’t clear as it is tough to tell how effective the program will be. The original Home Affordable Refinance Program, or HARP, led to refinancings by 894,000 homeowners in about two years. Estimates for how many borrowers could now take part range from 500,000 to three million, while FHFA said it is "very difficult to project the number of mortgages that may be refinanced." Some mortgage bonds traded lower Monday on news of the plan.

Granted, prepayment risk is inherent to mortgage bonds. There is also likely to be little sympathy for bondholders having to give up money to shore up housing. But that ignores that the government is picking winners and losers. Effectively, it is deciding some losses on some things are acceptable, say on 401(k) retirement plans, yet aren’t on others, namely housing.

The government also potentially undermines its own effort to create a housing-finance market independent of Fannie and Freddie. Many mortgage investors may choose to reinvest elsewhere, ultimately shrinking the pool of lenders available to fund that market. In the short term, the Fed may well take their place. That isn’t the basis, though, for a functioning mortgage market underpinned by private capital.

Another unsettling wrinkle: The FHFA is adding an incentive for borrowers to refinance into shorter-maturity mortgages. But in many cases, this will mean a borrower’s monthly payment, including principal repayment, won’t decline. It may actually rise. That undermines the notion that these borrowers are unable to meet monthly payments and need government assistance.

Banks may also benefit depending on how FHFA decides to limit the risk that they could be forced under some circumstances to repurchase shoddily underwritten mortgages.

The biggest issue, though, isn’t necessarily with HARP or similar programs. It is that both parties in Washington are studiously avoiding any real effort to overhaul housing finance and decide what to do about Fannie and Freddie.



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October 25, 2011 at 3:34 pm

Wholesale is Part of the Solution … and Ready to Grow Again

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John Walsh, via Mortgage Professional

The mortgage industry has dealt with sweeping changes over the past few years significantly impacting the mortgage broker and wholesale lending. As a result, the wholesale origination model has been largely redefined. Although many brokers and lenders have left the business, the wholesale channel now has a well-defined regulatory framework with higher-quality and better-skilled mortgage professionals to advise borrowers on their most important financial decision. This is why I believe the mortgage broker will thrive in the coming years.

I see a compelling future for wholesale lending, one that plays a vital role and guarantees that borrowers have access to the most competitive rates and an array of responsible program options. In the absence of wholesale, there is no doubt that consumer choice would be significantly reduced, as the mortgage marketplace would be dominated by a handful of large national lenders. The mortgage broker-to-consumer option helps guarantee healthy competition in the marketplace.
Additionally, mortgage brokers provide borrowers with access to a mortgage professional who will act as their partner, trusted advisor and advocate throughout the lending process. Mortgage brokers are knowledgeable about multiple products from various lenders and can help borrowers navigate the myriad of options to find the loan that is best suited to their needs.

Wholesale lending plays a critical role in ensuring that the mortgage industry does not become too heavily reliant on a select few large lenders, so that borrowers will continue to have plenty of mortgage options for any purchase or refinance transaction. In the coming years, mortgage brokers and lenders need to be committed to ethical behavior, responsible lending, ongoing training and the highest levels of customer service. Together, we must continue to improve, practice responsible lending, and advocate for this important channel and solution for borrowers.


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October 25, 2011 at 3:30 pm

U.S. Plan to Expand Mortgage Aid May Boost Spending, Stumpf Says

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Donal Griffin, via Bloomberg

U.S. regulators’ plan to expand aid to underwater mortgage borrowers may leave consumers with more spending money and boost the economy, said Wells Fargo & Co. (WFC) Chief Executive Officer John Stumpf.

“This could be really helpful,” Stumpf said today at a press club lunch in Atlanta. It may put “more money in people’s pockets. They’ll go out and spend, and get this economy going again.” San Francisco-based Wells Fargo is the nation’s biggest home lender.

Regulators will let qualified borrowers refinance mortgages regardless of how much their houses have dropped in value as the government expands relief efforts for homeowners. The Federal Housing Finance Agency will also enhance the Home Affordable Refinance Program by eliminating or reducing some fees and waiving some risk for lenders, Edward J. DeMarco, the agency’s acting director, said today.

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October 25, 2011 at 3:20 pm

Obama Offers Mortgage Relief on Western Trip

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Obama, in first leg of three-day Western trip, offers mortgage relief in struggling Nevada.

Jim Kuhnhenn, via Associated Press

LAS VEGAS (AP) — President Barack Obama offered mortgage relief on Monday to hundreds of thousands of Americans, his latest attempt to ease the economic and political fallout of a housing crisis that has bedeviled him as he seeks a second term.

"I’m here to say that we can’t wait for an increasingly dysfunctional Congress to do its job," the president declared outside a family home in Las Vegas, the epicenter of foreclosures and joblessness. "Where they won’t act, I will."

Making a case for his policies and a new effort to circumvent roadblocks put up by Republican lawmakers, Obama also laid out a theme for his re-election, saying that there’s "no excuse for all the games and the gridlock that we’ve been seeing in Washington."

"People out here don’t have a lot of time or a lot of patience for some of that nonsense that’s been going on in Washington," he said.

The new rules for federally guaranteed loans represent a recognition that measures the administration has taken so far on housing have not worked as well as expected.

His jobs bill struggling in Congress, Obama tried a new catchphrase — "We can’t wait" — to highlight his administrative initiatives and to shift blame to congressional Republicans for lack of action to boost employment and stimulate an economic recovery.

Later in the week, Obama plans to announce measures to make it easier for college graduates to pay back federal loans. Such executive action allows Obama to address economic ills and other domestic challenges in spite of Republican opposition to most of his proposals.

While Obama has proposed prodding the economy with payroll tax cuts and increased spending on public works and aid to states, he has yet to offer a wholesale overhaul of the nation’s housing programs. Economists point to the burst housing bubble as the main culprit behind the 2008 financial crisis. Meanwhile, the combination of unemployment, depressed wages and mortgages that exceed house values has continued to put a strain on the economy.

While the White House tried to avoid predicting how many homeowners would benefit from the revamped refinancing program, the Federal Housing Finance Agency estimated an additional 1 million people would qualify. Moody’s Analytics say the figure could be as high as 1.6 million.

Under Obama’s proposal, homeowners who are still current on their mortgages would be able to refinance no matter how much their home value has dropped below what they still owe.

"Now, over the past two years, we’ve already taken some steps to help folks refinance their mortgages," Obama said, listing a series of measures. "But we can do more."

At the same time, Obama acknowledged that his latest proposal will not do all that’s not needed to get the housing market back on its feet. "Given the magnitude of the housing bubble, and the huge inventory of unsold homes in places like Nevada, it will take time to solve these challenges," he said.

In spelling out the plan to homeowners in a diverse, working-class Las Vegas neighborhood, Obama chose a state that provides the starkest example of the toll the housing crisis has exacted from Americans. One in every 118 homes in the state of Nevada received a foreclosure notice in September, the highest ratio in the country, according to the foreclosure listing firm RealtyTrac.

Obama visited the home of Jose and Lissette Bonilla, two grocery store workers whose house was refurbished under a program paid for by the original 2009 economic stimulus plan. The program was designed to stabilize communities hit by foreclosures or abandonment. Lissette Bonilla said she told the president that without his stimulus plan, the five members of her family would still be living in a one-bedroom apartment.

Presidential spokesman Jay Carney criticized Republican presidential candidate Mitt Romney for proposing last week while in Las Vegas that the government not interfere with foreclosures. "Don’t try to stop the foreclosure process," Romney told the Las Vegas Review-Journal. "Let it run its course and hit the bottom."

"That is not a solution," Carney told reporters on Air Force One. He said Romney would tell homeowners, "`You’re on your own, tough luck.’"

The president also was using his visit to Las Vegas to promote a $15 billion neighborhood revitalization plan contained in his current jobs proposal that would help redevelop abandoned and foreclosed properties and stabilize affected neighborhoods.

The Nevada stop was the first leg of a three-day tour of Western states, blending his pitch for boosting the economy with an aggressive hunt for campaign cash.

From Nevada, Obama will head for the glamor of Hollywood and the homes of movie stars Melanie Griffith and Antonio Banderas and producer James Lassiter for some high-dollar fundraising. On Tuesday, he will tape an appearance on "The Tonight Show" with Jay Leno. He will also raise money in San Francisco and in Denver.

Before the president addressed his mortgage refinancing plan, he attended a fundraiser at the luxurious Bellagio hotel, offering a sharp contrast between well-to-do who are fueling his campaign and the struggling homeowners hoping to benefit from his policies.

The mortgage assistance plan by the Federal Housing Finance Agency will help borrowers with little or no equity in their homes, many of whom are stuck with 6 or 7 percent mortgage rates, to seek refinancing and take advantage of lower rates. The FHFA plans to remove caps that had allowed homeowners to refinance only if they owed up to 25 percent more than their homes are worth.

The refinancing program is being extended until the end of 2013. It was originally scheduled to end in June 2012.

The administration’s incremental steps to help homeowners have prompted even the president’s allies to demand more aggressive action.

Rep. Dennis Cardoza, a moderate Democrat from California, gave voice to Democratic frustration on the housing front last week when he announced his decision not to seek re-election, blaming the Obama administration directly for not addressing the crisis.

"I am dismayed by the administration’s failure to understand and effectively address the current housing foreclosure crisis," Cardoza said in a statement that drew widespread attention. "Home foreclosures are destroying communities and crushing our economy, and the administration’s inaction is infuriating."

Obama’s new "We can’t wait" slogan is his latest in a string of stump-speech refrains he hopes will pressure Republicans who oppose his $447 billion jobs package. He initially exhorted Congress to "Pass this bill!" then demanded "I want it back," all in the face of unanimous Republican opposition in the Senate, though even some Democrats were unhappy with the plan.

Obama has now agreed to break the proposal into its component parts and seek congressional approval one measure at a time. The overall proposal would increase taxes on millionaires, lower payroll taxes on workers and businesses for a year, pay for bridge, road and school construction projects, and help states and local governments retain teachers and emergency workers.

The proposals with the best chance of passage are the payroll tax cuts and extensions in jobless insurance to the long-term unemployed.

Countering Obama’s criticism, GOP leaders say the sluggish economy and stubbornly high unemployment rate are the result of failed Obama administration policies.

"It’s another day in the campaign life of President Obama, and he’s bringing his re-election tour to Nevada, ground zero for the damaging effects of his failed economic policies," Republican National Committee Chairman Reince Priebus said Monday.

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October 25, 2011 at 1:54 pm