Friday, May 30, 2008

Housing/Subprime/Credit Roundup — May 30, 2008

Items of Interest:

US Bank failures per yearMike Mish Shedlock /
S&L Crisis Vs. Current Crisis -- Current problem smaller but more pervasive.

I've been talking about an expected wave of bank failures for quite some time, most recently in Too Late To Stop Bank Failures. Recently I was asked to compare the current crisis to the 1980's S&L crisis in regards to whether or not this crisis will be worse.

By sheer number of failures, the S&L crisis will dwarf what's coming hands down. Here is a chart from MarketWatch that tells the story...

The Big Picture:
April New Home Sales - Revisited -- On Tuesday, we noted that New Home Sales fell 42%. There was one small piece of the data I failed to mention earlier in the week, which is worth discussing -- the March revisions:
1) Revisions: April's (unrevised) data for new homes was 526k annualized units (+3.3). That is the identical to the number released in March -- 526k units. March sales were revised to -11% from -8.5%. So but for the revisions, March to April headlinenumber was flat.
How did we show a 3.3% monthly gain? Tuesday’s report saw March revised DOWNWARDS from 526k units to 509k units. In other words, April did not so much showed a positive move upwards (statistical error notwithstanding) as much as the prior month comparison was revised downwards...
Wall Street & Technology:
Drop in Housing Starts Indicates Unemployment Is Headed to 9% -- Where is the economy headed? Some “experts” say the economy is ready to rebound, after a short contraction. Others think that the economy is just at the beginning of a long and painful recession. However, the truth may be hidden in data that tracks housing starts, according to University of San Francisco business professor Jon Fisher, who previously founded and sold his online authentication company Bharosa to Oracle. Fisher contends the unemployment rate may be headed to 9 percent.

Fisher says that history shows that as the number of new housing starts drops, the unemployment rate rises shortly thereafter. After analyzing new housing start data, in the next 12 months, Fisher says the U.S. could see unemployment rates as high as 9 percent, a rate not seen since 1983.

“This is important data given the number of layoffs projected on Wall Street,” Fisher wrote in an email. “I think the numbers are a fraction of what we're going to see." ...

“The following chart is a plot of new U.S. housing starts (white line) and unemployment (red line) over the last 50 years. Historically, when new U.S. housing starts have plunged, unemployment has surged in the following year.”....

New Homes vs. unemployment rate----
New Overdue Home Loans Swamp Effort to Fix Mortgages in Default -- Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing.

In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said...

Last month's 54 percent "cure ratio" among defaulted mortgages compares with 80 percent a year earlier and 87 percent in March. The comparison may not be valid because one lender changed the way it calculated defaults and cures reported to the insurers.
Calculated Risk:
Bloomberg's Weird Numbers -- Forgive me for once again falling into despair over the media's inability to report sensibly and critically on foreclosure and delinquency numbers. I should be immune by now. If you are wiser than I, just skip to the next post. If you still cradle to your wounded heart the battered but indomitable belief that even media outlets like Bloomberg can learn to spot the flaws in a reported statistic..

So we start with an eye-popping number, and then only at the very end do we note that this number may mean much less than meets the eye...
NY Times:
Lose Homes, Pay More Tax -- Some of the biggest losers in the real estate slump are not purchasers of mansions they could not afford. They are buyers of second homes — or third ones, for that matter — who are sitting on a tax time bomb.

Many of these people will lose their properties in foreclosure and then stagger into bankruptcy under the weight of a sizable tax bill. While Congress has granted some tax relief to people who lose their primary homes, there is no such aid for those who fall behind on payments on a getaway condo in Las Vegas, a retirement home on the Florida coast or an old house that they are renting out for income.

Bankruptcy lawyers say they are seeing a wave of foreclosures among owners of second homes in such a position, owners who thought they had found sound advice for financial security...
Wall Street Journal:
Mortgage-Broker Study Finds High Fees Charged -- The home-mortgage industry takes advantage of consumers' confusion to charge some people much higher fees than others, according to a study prepared for the Department of Housing and Urban Development.

The study by Susan Woodward, a former chief economist for HUD, also found that loans arranged by brokers typically carried higher fees than those obtained directly from lenders.

The report, released Thursday, is based on an analysis of 7,560 fixed-rate home-purchase loans completed in May and June 2001 and insured by the Federal Housing Administration, an arm of HUD.

The study says lenders typically make better offers to borrowers in neighborhoods with higher general levels of education...
NY Times:
At Bear, an Apology Is Met With Silence -- Dropping the curtain on 85 years of Wall Street history, shareholders of Bear Stearns voted Thursday to support the troubled investment bank’s controversial, government-backed merger with JPMorgan Chase.

The result, announced at a 10 a.m. meeting at Bear’s headquarters at 383 Madison Avenue, marked the end of Bear as an independent firm. But the outcome reflected less an embrace of the deal by bruised investors than the stark reality that the $10-a-share price was the best option available...

Thursday, May 29, 2008

Housing/Subprime/Credit Roundup — May 29, 2008

Items of Interest:

Mortgage rates jump to 11-week high -- Rates on 30-year mortgages jumped this week to the highest level since mid-March as investors began to worry about what the Fed will do to combat growing inflation pressures....

Mortgage rates rise, topping 6% - CNN Money
Mortgage Rates Soar: Are More Foreclosures Ahead? - Realty Check, CNBC
Wall Street Journal:
You Don't Have to Be Rich to Own a Home on the Beach -- Miami, FL -- Yes, this state is on sale. But how cheaply can you get a weekend home?

After all, not everybody is in the market for a multimillion-dollar residence, or is ready to spend $1,000 a month on condo fees.

So what kind of deals are out there now for the rest of us?

The answer is that for less than $200,000 you can now get something pretty reasonable, on or near the water.

Whether you count that as value may depend on a lot of things. But these are prices not seen down here since well before the bubble.

For example, $150,000 might now get you a three-bedroom house in a distressed sale in Cape Coral, a town on the Gulf coast just north of Naples. "I've got one in a short (read distressed) sale," says local agent Joan Psarros at Re/Max. "It's 2,000 square feet, on a fresh water canal, and it has a pool. It's only a few years old – it was built in 2005." ...
Naked Capitalism:
NYC RGE Monitor Panel Discussion (Not for the Fainthearted) -- Housing is set to fall further. Case Shiller says prices have declined 14% so far. RGE thinks it's more like 20%. Unsold inventories are still increasing. Housing prices will continue to fall through at least 2009. RGE sees the bottom at a 30% fall, which equates to a $6.6 trillion loss of wealth. That's equal to 1/2 year of GDP>

With a 10% fall in housing prices, you have about 8 million mortgages underwater. At 20%, it goes to 16 million and at 30%, 21 million. That's 40% of the mortgages (roughly 51 million homes are mortgaged).

Then the question becomes what losses result. Assume a 20% fall in housings prices. Assume 50% loss severity (as in you get 50 cents on the dollar). The question is how many walk away, If you assume as Roubini does, that 50% will walk away (note most analysts assume more like 20-25%)), losses will be $1 trillion. But the equity of US banks is only $1.3 trillion. Admittedly, not all the losses will hit banks, since a lot of the paper was sold to institutional investors and overseas, but even if you get only 25% walking away, that's losses of $500 billion.

Wednesday, May 28, 2008

Housing/Subprime/Credit Roundup — May 28, 2008

Items of Interest:

Mortgage applications slipped in latest week: MBA -- Applications for home mortgages slipped for a second consecutive week as borrowing rates crept higher, according to data published by an industry group on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity decreased 4.6 percent to 593.3 in the week ended May 23. It was the lowest level since the week ended April 25, suggesting tight credit conditions and falling home prices continued to depress the housing market.

Fixed 30-year mortgage rates averaged 5.96 percent last week, up 6 basis points from the previous week, the MBA said. Rates on one-year adjustable-rate mortgages jumped to 6.92 percent in the week from 6.71 percent a week earlier...

Housing Wire:
Applications Fall as Refinancing Slows; Activity Scratches Yearly Low
Wall Street Journal:
The Truth Behind Florida's Housing Numbers -- Take the latest data on the housing market crash with a huge dose of salt.

I have just finished a week-long tour of the real estate market down here, one of the worst hit parts of the country. And one of the few things I can say with complete certainty is that nobody down there knows where "the market" overall really is. In a crash like this one, talk about "average" home prices is almost meaningless.

But if you have wanted a vacation or retirement home in Florida and you have been waiting for prices to come down, this really is the time to start looking...
Jeff Jarvis / Seeking Alpha:
Realtors, Prepare to Lose Your 6 Percent -- The monopolistic hold big real estate agents have had on information — on access to use multiple listings services — has been blown open at last thanks to the Justice Department’s antitrust settlement with the National Association of Realtors.

Kiss your 6 percent commission good-bye, Ms. Agent! Competition is on the way.

The only reason — only reason — that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient. To quote Umair Haque:
Competitive advantage is fundamentally about making markets work less efficiently. One catastrophically effective way to do that is to hide and obscure information – to gain bargaining power relative to the guy on the other side of the table. . . .

A world of cheap, abundant, always-on interaction, where value is shifting to the edges, demands a fresh understanding of what’s truly strategic and what’s not...

Tuesday, May 27, 2008

Housing/Subprime/Credit Roundup — May 27, 2008

Items of Interest:

New-Home Sales in the U.S. Rose 3.3% to 526,000 -- New-home sales in the U.S. unexpectedly rose in April after readings for the prior month were revised down, signaling a worsening housing slump is still a threat to the economy.

Sales increased 3.3 percent to an annual pace of 526,000 from a 509,000 rate the prior month that was the lowest in 17 years, the Commerce Department said today in Washington. A separate [S&P/Case-Shiller] report today showed home prices dropped in the first quarter by the most in at least 20 years...

comment: the consensus estimate was for 520,000 new-home [annualized] sales in April.
April 2008 new home sales 526,000Barron's Econoday:
New home sales improved in April, up 3.3 percent but against a downwardly revised March level. The current annual rate of 526,000, next only to March's 509,000, is the lowest since the early 90s with the year-on-year percentage decline of 42.0 percent the worst since the early 80s.

But prices steadied in the month, up 9.1 percent to a median $246,100 for an actual year-on-year increase of 1.5 percent and the best level since November. The year-on-year rate had been declining in prior reports, down 13.3 percent as recently as March. Supply remains heavy at 10.6 months vs. 11.1 months in March. But one positive is that the number of houses for sale, apart from the sales rate, is at 456,000 units, the lowest level in nearly three years. Year-on-year, homes for sale are down 16.9 percent for the biggest drop in 11 years. The supply of existing homes, in data released last week, stood at 11.2 months.

This report is mixed with sales troubling but the rise in prices a big positive that could limit pressure on the consumer and the degree of foreclosures. But the improvement will have to be confirmed by future reports and the appearance of strength in existing home sales. The markets reacted favorably to the report which has offset a dismal report on consumer confidence....
Historical New Home Sales Chart -- While New Home Sales did rise 3.3% in April, it was a month over month comparison. The real story is that sales declined 42% year over year.

S&P/Case-Shiller U.S. Home-Price Index Fell 14.4% in March -- Home prices in 20 U.S. metropolitan areas fell in March by the most on record, pointing to continued weakness in the housing market that will further drag on the economy.

The S&P/Case-Shiller home-price index dropped 14.4 percent from a year earlier, more than forecast and the most since the figures were first published in 2001. The gauge has fallen every month since January 2007.

Prices continue to slide as record foreclosures put more homes on the market and stricter lending standards make it harder to get loans. Falling home values are slowing consumer spending, threatening to halt the six-year expansion.

``Many households are putting their home-buying plans on hold, given the expectations that the house price corrections will persist,'' Celia Chen, an economist at Moody's in West Chester, Pennsylvania, said before the report. ``The housing downturn remains in full swing.''
S&P Case-Shiller National Index off 6.7% in Q1 - Calculated Risk
Single-family home prices tumble - Reuters
Case-Shiller: Prices Fell 14%, Most on Record - The Big Picture
Kevin Depew / Minyanville:
Real Estate: Good News/Bad News/Worse News -- First the good news: New Home Sales rose 3.3% in April off the prior month's 17-year low watermark, according to the Commerce Department. That was quite a bit more than most economists had forecast. As well, inventories fell to 10.6 months' worth of homes at the current pace of sales, down from March's 11.1 months' of inventory.

Now, the bad news: The S&P/Case-Shiller index showed home prices fell 14.1% in the first quarter. Nineteen of the 20 cities in the index showed a year-over-year decrease in prices for March, led by a 26 percent slump in Las Vegas and a 25 percent decline in Miami. Eighteen of 20 showed monthly declines in price.

And finally, worse news: Although new home sales upticked between March and April, year-over-year home sales were down 42% from 2007 levels, the largest year-over-year decline since September 1991. Also, keep in mind that new home sales account for just a sliver of the overall real estate market, about 15%. Previously-owned homes account for 85%.
Buffett: Banks Are to Blame For Subprime Debt Crisis -- Blame for the sub-prime crisis lies at the feet of banks who took too many risks in mortgage lending, U.S. billionaire investor Warren Buffett told newspaper El Pais in an interview published on Sunday.

"The banks exposed themselves too much, they took on too much risk .... It's their fault. There's no need to blame anyone else," he said.

Buffett, dubbed the world's richest person by Forbes magazine, said he believed the situation in financial markets would not deteriorate further.

"I don't think the situation will get worse in financial markets. General conditions in the business world will get worse, but it will only last a while," he said, adding he had no idea when an upturn would come....
NY Times:
At Least a Start on Housing’s Revival -- while many industry analysts agree that home-buying conditions have improved somewhat from a year ago, they say that any talk of a recovery for the housing market over all, and for homebuilders in particular, is a bit premature...
NY Times:
A C.E.O. Hits ‘Reply,’ and Now It’s Regret -- His multimillion-dollar compensation package and appearances at Congressional hearings have made Angelo R. Mozilo, Countrywide Financial’s chief executive, the public face of the subprime mortgage crisis. That face may have turned crimson after he mishandled an e-mail message from a Countrywide customer asking for an adjustment to the terms of his mortgage.

Mr. Mozilo wrote that the e-mail was “unbelievable” and “disgusting,” but instead of forwarding this assessment to a subordinate, he hit “reply” by mistake.

Apparently it was not the request itself that bothered Mr. Mozilo — he must be used to those by now — but that it had been crafted from a fill-in-the-blanks template on a Web site that coaches distressed mortgage holders.

The homeowner, Dan Bailey, wasted no time posting the exchange on the Web site,
NY Times:
Macklowes Sell G.M. Building For $2.9 Billion -- A group led by Mortimer B. Zuckerman, chief executive of Boston Properties, a publicly traded real estate company, is buying the General Motors Building and three other Midtown towers from the financially troubled Macklowe family for $3.95 billion.

The deal, which had been brewing for months as the Macklowes sought to get out from under more than $7 billion in debt, is a victory for Mr. Zuckerman, owner of The Daily News, and his partners, Goldman Sachs and the nations of Qatar and Kuwait, who paid about $2.9 billion for the 50-story, white marble G.M. Building on Fifth Avenue at 59th Street. It is the highest price ever paid for an American office tower...

Friday, May 23, 2008

Housing/Subprime/Credit Roundup — May 23, 2008

Items of Interest:

existing home sales in the US fell 1% in April to a 4.89 million-unit annual rateBloomberg:
Home Resales Decline, Inventories Jump -- Sales of previously owned homes in the U.S. fell in April and the supply of unsold properties reached a record, signaling no let-up in the 27-month housing slump.

Purchases declined 1 percent to an annual rate of 4.89 million, higher than forecast, the National Association of Realtors said today in Washington. The median price fell 8 percent from April last year, the second-biggest drop.

``There is no indication that things are improving,'' said Christopher Low, chief economist at FTN Financial in New York, who forecast sales would drop to a 4.9 million pace. ``Inventories will stay out of balance at least until the end of 2009 and prices will keep falling.''

National Association of Realtors:
Existing-Home Sales Ease Due to Mortgage Restrictions; Some Markets Rising

The Big Picture:
Existing Homes Sales Fall; NAR seeks a PhD in Absurdism --
"Existing-home sales slowed in April, partly because restrictive lending practices hampered home buyers. At the same time, more areas are showing gains, and a reversal in mortgage policy means the market is better positioned for a turnaround." (emphasis added) -- NAR, May 23, 2008
Housing Doom blog:
April National Existing Home Sales: Sales Down, Inventory At Record Levels
Existing Home Sales Back to Prior Lows -- the argument that real estate is getting better can't be made yet.

Existing Home sales and Home Builder stocks---
Wall Street Journal:
Fannie, Freddie Report Progress In Cutting Some Mortgage Rates -- Executives of Fannie Mae and Freddie Mac told Congress they are finally bringing down interest rates on some "jumbo" mortgages.

The executives testified Thursday before the House Financial Services Committee, whose chairman, Rep. Barney Frank, a Massachusetts Democrat, was seeking information on why such mortgages have remained relatively expensive.

Jumbo mortgages are those larger than the normal limit -- currently $417,000 -- on loans that can be sold to Fannie and Freddie, government-sponsored companies that provide the bulk of funding for U.S. home loans. Rates on such loans soared in mid-2007 as rising defaults caused investors to shun loans other than those backed by Fannie, Freddie or the Federal Housing Administration. High rates on jumbo loans hurt housing demand in expensive areas such as California or much of the East Coast, where even a modest home often costs more than $500,000...
The Big Picture:
James Galbraith Says Housing Problem to Last `Long Time' -- James Galbraith, an economics professor at the University of Texas, talks with Bloomberg's Matt Miller from Austin, Texas, about the outlook for the U.S. economy and the challenges facing the next president, the impact of Federal Reserve monetary policy on inflation, and the state of the U.S. housing market.
Wall Street Journal:
Builders Tout Incentives In Bid to Sell Homes -- Highlighting their desperation to sell houses, builders are bringing back the gimmicks -- mortgage rates that start low, help with down payments, zero out-of-pocket expenses -- that helped fuel the housing bubble before it went bust...

Lennar Sell-A-Thon, Memorial Day Weekend 2008
CNN Money:
Builders Tout No-Money Down, Adjustable Mortgages -- This weekend, Lennar Corp., the nation's largest builder by revenue, will start interest rates at 2.88% for the first year - 3.88% for the second - before a slightly higher rate locks "for life." [during their "Sell-A-Thon"] ...
Wall Street Journal:
Home-Price Declines Accelerate -- Home prices are falling faster as the economy slows and turmoil in the mortgage markets continues.

Prices fell an average of 1.7% nationwide in the first quarter from the final three months of 2007, according to the Office of Federal Housing Enterprise Oversight. The decline was the largest in the index's 17-year history. The government index, which is seasonally adjusted and based on data for home purchases, had dropped 1.4% in the prior quarter. Compared with a year earlier, home prices dropped 3.1% in the first quarter...
Wall Street Journal / Econ blog:
Ofheo vs. Case-Shiller: A Primer -- The Office of Federal Housing Enterprise Oversight home-price index and the S&P/Case-Shiller home-price index... are arguably the two most closely watched barometers of U.S. home prices. However, there are some key differences among them. Read a recent Capital column that compares and contrasts the two indexes.
Paper Economy blog:
Collapsedachusetts Existing Home Sales Preview: April 2008 -- Sources inside the Massachusetts Association of Realtors (MAR) report that next week’s monthly existing home sales results will show that April single family home sales crashed 15.8% on a year-over-year basis while condo sales collapsed a stunning 26.6% over the same period.

Further, the single family median home value declined a whopping 8.7% on a year-over-year basis to $314,900 while condo median prices remained unchanged at $275,000...
NY City Housing Bubble blog
Housing's False Bottom -- Japan's land prices rose for a long time, and declined for a long time. This characteristic is shared by bubbles in all time frames and locales...

Japan land price bubble---
The Mess That Greenspan Made blog:
This is what five dollar gas looks like -- Via the L.A. Land blog - they say this is from Death Valley so it doesn't really count, but this is what it will look like someday in other areas.

$5 dollar gas in California

Thursday, May 22, 2008

Housing/Subprime/Credit Roundup — May 22, 2008

Items of Interest:

U.S. home prices down 1.7% in first quarter: OFHEO -- U.S. home prices fell a seasonally adjusted 1.7% in the first three months of 2008 -- the largest quarterly price decline on record, the Office of Federal Housing Enterprise Oversight reported Thursday.

Prices fell in 43 states, according to the agency. Prices were down 3.1% between the first quarter of 2007 and the first quarter of 2008, OFHEO's data showed.

"For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets," said James Lockhart, OFHEO director. "To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news, as are continued low mortgage rates."

Eight states had quarterly prices declines of more than 3%, while in California and Nevada prices fell more than 8%. The states with the greatest quarterly price appreciation were Wyoming, with a gain of 6.3%, and Utah, up 5.6%.

In the prior quarter, prices declined 1.4%...

Another chapter in the subprime crisis?

Dora Bonner of Jefferson CountyBloomberg:
JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County -- As nighttime temperatures plunged in Birmingham, Alabama, last October, Dora Bonner had a choice: either pay the gas bill so she could heat the home she shares with four grandchildren, or send the Birmingham Water Works a $250 check for her water and sewer bill.

Bonner, who is 73 and lives on Social Security, decided to keep the house from freezing.

``I couldn't afford the water, so they shut it off,'' she says.

Bonner's sewer bills have risen more than fourfold in the past decade. So have those of others in Jefferson County, which has 659,000 residents and includes Birmingham, the state's largest city.

What's threatening to increase them even more isn't the high cost of treating waste; it's the way county officials chose to finance the $3.2 billion in debt they took on to build a new sewer system. The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding...
William M. Isaac / Wall Street Journal:
The Fed and the Mortgage 'Crisis' -- Bear Stearns also marks the first time the Fed has taken meaningful financial risk in facilitating a takeover. This is by far the most troubling aspect of the Fed's rescue effort. If the Fed had simply provided liquidity to Bear Stearns through JPMorgan Chase, I suspect there would be fewer critics of the transaction.

Do we want the Fed underwriting takeovers of failing firms? Are we willing to allow that to happen without a competitive bidding process, which is routinely used when insured banks fail? Would we want the Fed to rescue an insurance company? How about an auto company? In short, what are the rules going forward?

I'm delighted the liquidity crisis has eased, and I believe the Fed had a big hand in that. But I'm deeply troubled by the precedent that has been set and the implications for our financial system.

It might be possible to stuff the genie back into the bottle by restricting the Fed's powers to engage in Bear Stearns-type transactions. Under current law, the FDIC cannot engage in an open-bank rescue package like the one that saved Continental Illinois without receiving a recommendation from the secretary of the Treasury (after consultation with the president), and without receiving approval from two-thirds of the FDIC's board and the board of governors of the Federal Reserve.

It's time for a good debate about the authority and role of our central bank, just as we had about the FDIC in the wake of the Continental Illinois rescue.

Wednesday, May 21, 2008

Housing/Subprime/Credit Roundup — May 21, 2008

Items of Interest:

Holman Jenkins, Wall Street Journal:
Why a Housing Bailout Won't Help -- "We are working with borrowers to keep them in their homes, but a lot of them really don't want to stay."

So spoke the chairwoman of a Southern California home lender to the Los Angeles Times, inadvertently putting her finger on why trying to bail out the mortgages behind today's uptick in the foreclosure rate may be self-defeating, and why many in Congress rightly have gotten cold feet...

Wall Street Journal:
Foreclosures Prompt Schools to Get Tough -- Some school districts are intensifying efforts to make sure students actually live where they are registered. One reason: The rise in home foreclosures may prod parents into faking addresses to keep their children at their current schools...
Housing Wire:
Mortgage Applications Tumble 7.8 Percent: MBA -- Mortgage applications fell last week as purchases and refinancing volume slid, and mortgage rates likely rose slightly, according to a weekly report published Wednesday morning by the Mortgage Bankers Association. The MBA’s market composite index dropped to 621.6 for the week ended May 16, a drop of 7.8 percent from one week earlier...
Mortgage applications drop 7.8% - CNN Money
NY Times:
Economic Tide Is Rising for Repo Man -- So many people have so many things they can no longer afford. This is an excellent time to be a repo man.

When a boat owner defaults on his loan, the bank hires Jeff Henderson to seize its property. The former Army detective tracks the boat down in a backyard or a marina or a garage and hauls it to his storage area and later auctions it off. After nearly 20 years in the repossession business, Mr. Henderson has never been busier.

“I used to take the weak ones,” he said. “Now I’m taking the whole herd.” ...
Boats - the newest economic proxy - Blown Mortgage blog

Tuesday, May 20, 2008

Housing/Subprime/Credit Roundup — May 20, 2008

Items of Interest:

U.S. Senate banking panel passes housing rescue plan -- A U.S. Senate banking panel on Tuesday passed legislation that would create a new government-backed mortgage rescue plan and a new regulator for Fannie Mae and Freddie Mac.

Lawmakers passed the legislation on a vote of 19 to 2 after the top Democrat and Republican on the panel crafted a compromise that won broad bipartisan support.

The plan would enable the Federal Housing Administration to guarantee billions of dollars in refinanced mortgages for homeowners whose properties have fallen in value since they took out their loan.

The legislation would also create a stronger regulator for Fannie Mae and Freddie Mac...

Housing Wire: Senate Panel Approves Housing Relief Bill

Demographics: Workers vs. pensioners in the US is peaking nowMike Mish Shedlock / Minyanville:
A Ticking Demographic Time Bomb -- The charts show the ratio of workers to non-workers will peak within the next four years or so in both the US and Canada. Workers vs. pensioners in the US is peaking now. Workers vs. pensioners in Canada has already peaked.

Fewer workers making less money than their parents will be supporting both social security and more importantly medical expenses (Medicare) for retirees. Retirees who think home prices will keep financing retirement need to start thinking again.

Home prices are falling and will likely continue to fall for another four years or so. That statement is based on logic presented in the following articles:
Boomers hoping to cash out on their homes, are two years or more too late in most places. Four years from now they'll be six years too late. To support consumption at the current pace, boomers will have to start cashing out their IRAs and stock portfolios. They'll also be looking to downsize autos and homes. When it comes to the latter, who are the buyers? What about the increasing tax burdens placed on the working force to support retirees? That backlash will be starting soon.

Interestingly, this demographic time bomb that is now about to go off has been known and understood for years, decades even. Nothing was done about it. Sadly, it's too late now. The only choices at this point are a cutback in promised benefits or increased taxes on the working population. I expect both are about to happen.
Jeff D. Opdyke / Wall Street Journal:
Where Home Prices Are Holding Up -- Downtown: It's been among the safest places to hide from the housing downturn.

Much has been made of the way the nation's real-estate bust is affecting some American cities far more than others. But even within a single metro area, changes in housing prices can show wild variations.

And in big cities, prices in the central cores often fare the best. Far-flung suburbs -- where home building exploded in recent years -- have more typically gotten hammered. In between is a patchwork of established suburbs and city neighborhoods peripheral to downtown that can be all over the map in terms of price declines -- or even increases...
Hausers Law: postwar America tax revenues have remained at about 19.5% of GDPDavid Ranson / Wall Street Jrnl:
You Can't Soak the Rich -- Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser's Law, because it is as central to the economics of taxation as Boyle's Law is to the physics of gases. Yet economists and policy makers are barely aware of it...

[Hauser] stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated...

The chart nearby, updating the evidence to 2007, confirms Hauser's Law. The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy...

Monday, May 19, 2008

Housing/Subprime/Credit Roundup — May 19, 2008

Items of Interest:

Banks Keep $35 Billion Markdown Off Income Statement -- Banks and securities firms, reeling from record losses resulting from the collapse of the mortgage securities market, are failing to acknowledge in their income statements at least $35 billion of additional writedowns included in their balance sheets, regulatory filings show...

Deal Book / NY Times:
For Banks, Subprime Hangover Lasts Beyond the Morning After -- Banks that had hoped to get over their subprime mortgage pain and move on are finding the hangover is lasting longer than expected as bonds of banks and insurers that have been crushed still may not be cheap enough to buy.

Reuters said in a report that the conventional wisdom last year was that companies like Citigroup and Merrill Lynch, both under new leadership, would use the last quarter of 2007 as a so-called “kitchen sink” quarter, to report their worst write-downs and losses, and move on.

But that did not happen...
Wall Street Journal:
Fannie, Freddie Called Weak in Capital Base -- Fannie Mae and Freddie Mac are "a point of vulnerability for the financial system" because their capital is meager in relation to their mortgage assets and obligations, the companies' main regulator said...
Housing Doom blog:
Fannie Mae: Building The Underwater Mortgages Of Tomorrow

Friday, May 16, 2008

Housing/Subprime/Credit Roundup — May 16, 2008

Items of Interest:

April 2008 Housing StartsEconoday / Barrons:
April 2008 Housing Starts -- The housing sector in April rebounded unexpectedly but the improvement may actually reflect the fact that it is more difficult to get into single-family housing or at least merely volatility in multifamily starts. Starts rebounded 8.2 percent, following a sharp 13.8 percent drop in March. April's 1.032 million units annualized were still down 30.6 percent year-on-year and came in above the consensus expectation for a 0.940 million units. The April boost was led by a 36.0 percent rebound in multifamily starts as single-family starts slipped another 1.7 percent...

Barry Ritholtz / TBP:
Housing Starts Plunge 30.6% -- Does this look like a bottom to you ?

Diana Olick / CNBC Realty Check:
Housing Starts: The Numbers Are A Joke And Not A Funny One
Wall Street Journal:
Bernanke's Bubble Laboratory -- First came the tech-stock bubble. Then there were bubbles in housing and credit. Chinese stocks took off like a rocket. Now, as prices soar on every material from oil to corn, some suggest there's a bubble in commodities.

But how and why do bubbles form? Economists traditionally haven't offered much insight. From World War II till the mid-1990s, there weren't many U.S. investing manias for them to look at. The study of bubbles was left to economic historians sifting through musty records of 17th-century Dutch tulip-bulb prices and the like.

The dot-com boom began to change that. "You were seeing live, in action, the unfolding of lots of examples of valuations disconnecting from fundamentals," says Princeton economist Harrison Hong. Now, the study of financial bubbles is hot...
U.S. Consumer Confidence Falls to 28-Year Low, Single-Family Starts Drop -- U.S. consumer confidence was the weakest this month since Jimmy Carter was president, and single- family home construction fell to a 17-year low in April.

The Reuters/University of Michigan preliminary index of consumer sentiment dropped to 59.5, compared with an average reading of 85.6 in 2007. Builders broke ground on 692,000 single-family homes at an annual rate, the Commerce Department said today in Washington. Total housing starts unexpectedly rose because of an increase in condominium construction...
Calculated Risk:
HELOCs: The New Subprime -- "...The market has, obviously, taken the view that the worst of the writedowns are behind us, and if anything it's now just a macroeconomic problem we face. I think that's dead wrong. We're now entering the phase where the macro impacts earnings, but also the stage where real cash losses start to hit the banks (subprime and Alt-A is primarily a mark-to-market issue, but HELOCs [Home Equity Line Of Credit] are going to be large, outright losses). Once WAMU, WFC, BAC and JPM start to get data through on how rapidly their HELOC portfolios are deteriorating, watch the losses pile up. I'm talking realised losses, not mark-to-market writedowns." ...

Thursday, May 15, 2008

Housing/Subprime/Credit Roundup — May 15, 2008

Items of Interest:

Paul Jackson / Housing Wire:
Senate Committee Takes Up Housing Debate -- The Senate Banking Committee is set to tackle proposed housing legislation on Thursday, and a key Democratic lawmaker said this morning that a deal with Republicans was nearing fruition. Committee Chairman Christopher Dodd (D-CT) told the press Thursday morning that a deal was “very close” during an interview on Fox Business Network; last second negotiations involving GOP leaders shuttled a scheduled committee markup on the Senate’s housing package from 10am EST to 11:30EST.

Dodd has been working hard to gain the support of key Republicans for a tentative housing relief package, postponing earlier committee markups in the face of stiff GOP opposition.

The House of Representatives last week passed its own sweeping version of housing relief as part of a revised Foreclosure Prevention Act. House Financial Services Committee Chairman Barney Frank (D-MA), who originally pushed for the proposed legislation, has said he wants to authorize the Federal Housing Administration to insure up to $300 billion in refinanced mortgages for troubled borrowers, when the investor agrees to take a haircut on a portion of the outstanding debt...


Wednesday, May 14, 2008

Housing/Subprime/Credit Roundup — May 14, 2008

Items of Interest:

Foreclosures in U.S. Climbed 65% in April to Record as Home Prices Dropped -- U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier as rates on adjustable mortgages increased and vacated homes added to a glut of unsold homes, RealtyTrac Inc. said.

More than 243,300 properties, or one in every 519 households, were in some stage of foreclosure, the highest monthly total since RealtyTrac, a seller of default data, began statistics in January 2005. Nevada, California and Florida had the highest rates. Filings rose 4 percent from March.

Properties in foreclosure ``contribute to already bloated inventories of homes for sale, and put downward pressure on home values,'' RealtyTrac Chief Executive Officer James Saccacio said today in a statement...

Remodeling business follows housing lower -- The downturn in the housing market has dragged the remodeling sector with it. For many contractors, that means a sudden struggle to stay busy.

Tuesday, May 13, 2008

Housing/Subprime/Credit Roundup — May 13, 2008

Items of Interest:

CNN Money:
Home prices continue sharp descent -- Steep drops in West. Heartland prices stabilize. Bottom line: 7.7% decline in first quarter.

Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.

The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007...

In February, Freddie Mac and Fannie Mae, the government sponsored enterprises that guarantee a market for conforming loans, have raised the $417,000 cap to include mortgages of up to $729,750, but lenders were still charging much higher rates for these "conforming jumbos," between 1% and 1.5% more than ordinary conforming loans. The higher rates are discouraging sales in higher price ranges and so skewed NAR's median price results...

Stackable Modular Housing Units Built from Used SUVsKevin Depew / Minyanville:
Five Things You Need to Know: Themes Converge Into Possible Housing Solution -- There are several themes at play in today's Five Things that we believe could potentially converge into a singular, overarching housing solution: Foreclosures and Economic Hardship, High Gasoline Prices, Diminishing SUV Demand, Self-Storage Units, Shipping Container Shortages, Emergency Modular Housing Units.

The answer? Stackable Modular Housing Units Built from Used SUV's. I believe that one day in the not-so-distant future, the unwanted steel carcasses of four-wheel drive sport utility vehicles will be converted into stackable, modular low-income housing units. Think about it. They have nice seats, power windows, built in radio/cd players. Some things just make too much sense.

Monday, May 12, 2008

Housing/Subprime/Credit Roundup — May 12, 2008

Items of Interest:

Wall Street Journal:

Editorial: The Biggest Housing Losers -- You may not know it, dear reader, but Congress is playing you for a sap. During the housing mania, you didn't lend money at teaser rates to borrowers who couldn't pay, or buy a bigger house than you could afford. You paid your bills on time. As a reward for that good judgment and restraint, Barney Frank is now going to let you bail out the least responsible bankers and borrowers...

Democrats Face Rescue Backlash -- Democrats are risking a backlash over efforts by Congress to rescue homeowners who can't afford their mortgages. The White House and most Republicans say this amounts to using taxpayer money to reward bad behavior...

A Couple's Descent Into Foreclosure -- Tracing one Vallejo, Calif., couple's descent into foreclosure and bankruptcy...

Bonds Tied to Mortgages Have Hope -- Maybe there's a way to thrive in the howling wasteland that is the home-loan market. Bonds backed by mortgages look like a buying opportunity, assuming a new spate of defaults doesn't send their prices tumbling again...
No-money-down mortgages are still happening -- You probably thought nothing-down mortgage loans disappeared in the wake of the American subprime lending crisis, which ensnarled much of the world in a credit crunch...

Mortgage companies may be turning the corner -- Broad damage in the mortgage industry was in full view Monday as a number of companies posted dismal first-quarter earnings, but there were also some hope that the worst of the housing crisis is over...

Nine houses lost, investor reflects on ‘stumbles’ -- A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market...

Friday, May 9, 2008

Housing/Subprime/Credit Roundup — May 9, 2008

Items of Interest:

AIG see no rebound yet for subprime securities -- American International Group on Friday told investors that the structured credit market for residential mortgage securities, including subprime, does not appear to have rebounded.

"We don't see any precise evidence to date that those markets have rebounded," said Steve Bensinger, who it was announced yesterday will step aside as chief financial officer to assume a new post.

Late on Thursday, the world's largest insurer reported a record loss of $7.8 billion, largely as a result of writing down assets that have links to subprime mortgages. The company has said it expects much of the costly revaluation of these securities to "reverse" over time, as market conditions improve...

Euthanizing Bear
-- On Wednesday, they finally took Bear Stearns out behind the woodshed and ended its lingering misery. On that day, the plaintiffs’ attorneys in the last remaining viable lawsuit in New York against JPMorgan Chase and Bear withdrew their motion for a preliminary injunction to halt the JPMorgan acquisition. Instead, the lawyers stated that they will pursue monetary damages. There is one more suit pending in federal court but it does not look significant.

According to the latest filings with the Securities and Exchange Commission, JPMorgan now owns 49.43 percent of Bear Stearns, and so a “yes” vote to approve the combination is a virtual certainty...
Kevin Depew /
Five Things You Need to Know: Where Your Tax Rebate Is Really Going -- Today we see where India's government suspended futures trade in basic foods such as lentils, soy and potatoes for four months, hoping to "stop price rises driven by speculators."

Stopping price rises driven by speculators? That's one way to put it. Another way to put it is they are preventing price discovery. Why? Simple, because they don't like the prices that are being discovered.

The irony is that this prevention of price discovery is precisely what the Federal Reserve is doing by swapping out Treasuries for all manner of lesser-quality assets. They are basically preventing price discovery. Why? Because, like India's government, the Federal Reserve, banks, home sellers, mortgage lenders, derivatives dealers, almost everyone, doesn't like the prices that are being discovered.

The short rebuttal to this is that the Fed isn't preventing price discovery, it's simply providing liquidity because there is no price discovery currently taking place because there are otherwise no bidders. But you know what, as anyone who has ever tried to sell a ticket to a baseball game discovers after the first pitch has been thrown, a lack of bids is price discovery...
Adam Warner:
Blue Horseshoe Loves Chickpeas -- So I anticipated making a Big Salad in August and did what any sensible consumer would do, put in an order to buy some chickpea futures to lock in the price now. And I sit and wait for a fill. But it's not going to happen apparently. This, from Bloomberg.

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