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Thursday, July 10, 2008

Housing/Subprime/Credit Roundup — July 10, 2008

Items of Interest:

Bloomberg:
Foreclosures Rose 53% in June, Bank Seizures Triple -- U.S. foreclosure filings rose 53 percent in June from a year earlier and bank repossessions increased the most since RealtyTrac Inc. began collecting data in January 2005 as deteriorating property values forced more people to give up their homes.

One in every 501 U.S. households either lost the home to foreclosure, received a default notice or was warned of a pending auction, RealtyTrac, an Irvine, California-based seller of default data, said today in a statement. Bank seizures rose 171 percent.

``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.'' ...

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Mortgage Insider:
New Mortgage Bill Will Turn FHA Into Subprime Dumping Ground -- The Washington Post reported the HUD Secretary, Steve Preston is worried the mortgage bill could sink the FHA mortgage program. The bill as passed by the House allows subprime and other borrowers to convert their exploding mortgages into FHA mortgages.

Let’s hope the Senate comes to their senses and listen to FHA Commissioner Brian Montgomery and the Secretary to kill this bill. FHA needs comprehensive restructuring to put risk-based mortgage insurance in place, establish a larger reserve to pay the increased defaults, and they need to eliminate the stupid Down Payment Assistance programs before even considering such a risky move...
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Mr. Practical / Johnsville News:
Your Taxes: Underwriting Your Debt -- Minyans shouldn’t be surprised by the comments of former Federal Reserve president William Poole: "Congress ought to recognize that these firms [Fannie Mae (FNM) and Freddie Mac (FRE)] are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer."

Some time ago, we challenged the GSEs (government sponsored enterprises) business model, saying they were making extremely thin margins on very heavy leverage: It was highly probable that squeezing those margins would invalidate the business model and cause insolvency very quickly.

To most people, that seemed like an entirely hypothetical scenario when these stocks were thriving and the companies were carefully hiding their Achilles' heels.

Now, it's reality, but it still isn't clear whether the lessons of leverage will finally be learned. Government officials certainly refuse to grasp them, since leverage is their only power. But the market understands leverage all too well, and it's exacting the cure.

The GSEs are the system's poster boys for leverage. Let’s not forget how we got here: The Fed drove real interest rates negative (and they're still there), thus making “fake” capital available for widespread borrowing and spending.

Now the debt can't be borne; the Fed's devalued the dollar to death and thus destroyed any wealth the middle class had...
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