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Wednesday, July 30, 2008

Housing/Subprime/Credit Roundup — July 30, 2008

Items of Interest:

Bush signs housing bill as Fannie Mae grows -- U.S. President George W. Bush on Wednesday signed into law a sweeping rescue package aimed at resurrecting the housing market from its worst slump since the Great Depression and stabilizing the two largest mortgage finance companies.

The new law launches a $300 billion government initiative to refinance troubled mortgages, and boosts oversight of Fannie Mae and Freddie Mac, which own or guarantee almost half the country's $12 trillion in home mortgage debt.

It expands a line of U.S. Treasury credit for the companies, and gives the government the option to take equity stakes if they ran into trouble.

Lawmakers ironed out the law over the past month to stem a crisis in investor confidence over the two companies, which were created by Congress to keep mortgage money flowing...

Fannie and Freddie fixer upper
Mortgage applications hit 2008 low -- The number of new mortgages applied for fell 14.1%, according to a weekly survey from the Mortgage Bankers Association.

Mortgage application volume tumbled 14.1% during the week ending July 25, hitting its lowest level of the year, according to the Mortgage Bankers Association's weekly application survey.

Volume fell even though interest rates on fixed-rate mortgages retreated from sharp increases a week earlier.

Refinance volume plunged 22.9% during the week, while purchase application volume fell 7.8%. Refinance applications accounted for 35.2% of total application volume during the week.

The overall application index fell to 420.8 from 489.6 a week earlier.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked such data. The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom. . .
Todd Harrison / MarketWatch:
Hanky Panky: Are We Trading Against Henry Paulson? -- You always want to know what the party on the other side of your trade is thinking. When that party is the United States of America, the stakes rise in kind.

You may not agree with the socialization efforts, but you must certainly respect them. With the election less than four months away, the eyes of the world are upon our capital markets. That lens isn't lost on policy makers who seemingly have two separate initiatives.

First, they want to break the bearish credit bets currently being made by global macro hedge funds. They're attempting to do this by squeezing stocks higher through the enforcement of the short-sale rule, an initiative aimed at 19 select financial institutions but widely expected to soon include a broader swatch of equities. . .
Housing Bubble blog:
The Seemingly Relentless Nose-Dive In California -- [the] strategy will be to auction some of the homes. The company plans to auction 40 of the condos in August for $140,000 to $255,000. The homes had been offered for $275,000 to $455,000 previously.” ...
Calculated Risk: Foreclosures Spreading to the High End
Robert Samuelson / Washington Post:
The Homeownership Obsession -- The real lessons of the housing crisis have gotten lost. It's routinely portrayed as the financial system run amok; the housing market became a casino. The remedy, we're told, is to enact rules that prevent a repetition. All this is partly true. But it ignores a larger truth: Our infatuation with homeownership, embedded in dozens of government policies, has turned housing -- once a justifiable symbol of the American dream -- into something of a national nightmare.

As a society, we're overinvesting in real estate. We build too many McMansions. They use too much energy, and their carrying costs, including mortgage payments, absorb too much of Americans' incomes. We think everyone should become a homeowner, when many families can't or shouldn't. The result is to encourage lending to weak borrowers who are likely to default. The avid pursuit of a few more percentage points on the homeownership rate (it rose from 64 percent of households in 1994 to 69 percent in 2005) has condoned enormously damaging policies.

Does every house need a "home entertainment center"? Well, no. But when you subsidize something, you get more of it than you otherwise would. That's our housing policy. Let's count the conspicuous subsidies. . .
FDIC Closes Two Banks on July 25th via Calculated Risk:

Judy Weil / Seeking Alpha:
Subprime Is Back In Fashion -- Quotes Of The Day
“Credit quality across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.” - The IMF’s latest Global Financial Stability Report Market Update. The IMF said that despite capital raising by financials, balance sheets are still under stress and equity prices have falled sharply. (Housing Wire, July 28th)

“If you are here by the end of the day, you're okay.” – A Charlotte-based Wachovia supervisor wrote in an email to his staff. The supervisor was trying a bit of humor to calm his nervous staff amid rumors of firings. (NY Magazine, July 28th)

“You are being placed into the accelerated one-year analyst program – and it ends today.” An email sent to interns at Goldman Sachs after they had to eliminate 500 NY staffers in the wake of the subprime crisis. The young alums are being paid through August. (NY Magazine, July 28th) . . .
Record 2009 deficit - White House -- White House blames economic slowdown and stimulus payments to 130 million households as budget deficit headed to nearly half-trillion dollars.

The next president will inherit a record budget deficit of $482 billion, according to a new Bush administration estimate released Monday.

The administration said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. . .

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia