Thursday, July 31, 2008

Housing/Subprime/Credit Roundup — July 31, 2008

Items of Interest:

Alan Greenspan the bartender, who got Wall Street drunkCNBC:
Greenspan: Housing, Economy Still Far From Recovery -- Former Federal Reserve Chairman Alan Greenspan said the US is “nowhere near the bottom” of the housing slump and is “right on the brink” of a recession.

In an exclusive interview on CNBC, Greenspan said the US economy is holding up “rather well” considering the “extraordinary pressures from the financial sector.” But he added that a recession appears inevitable.

“I think we’re right on the brink,” he said. “I’d be more surprised if we didn’t than if we did, given the financial state.” . . .

He also warned that "Fannie and Freddie are a major accident waiting to happen."

"I think the ultimate solution is a nationalization of both Fannie and Freddie and I hope a restructuring in that nationalization," he said. "And then split them up into five or ten separate entities and sell them back into the market." ...

"I Said What?!" -- A look back at nine unforgettable statements by bank chief executives who would strike them from the record if they could.
"The mortgage market is going to be a great market in this country for a long time. We've got population growth. We've got people who are always going to want to live in homes that they own. It's going to be a great market."
—Wachovia C.E.O. Ken Thompson on CNBC trying to convince Maria Bartiromo that its $25 billion of Golden West Financial was a smart move, May 15, 2006. Thompson lost his job at Wachovia on June 2, 2008
California's Discount Foreclosure Sales Point to Housing Bottom -- California led the U.S. into the worst housing recession since the 1930s. Now the most populous state may be the first to find the bottom.

In Stockton, the U.S. metro area with the highest foreclosure rate, home sales more than doubled in the second quarter after prices fell by an average 37 percent, said PMZ Real Estate Corp., the area's largest broker. Across the state, sales rose for three consecutive months starting in April after 30 straight months of declines, the California Association of Realtors said. About 40 percent of those transactions were foreclosure sales, DataQuick Information Systems reported.

``California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery,'' said Mark Zandi, chief economist at Moody's in West Chester, Pennsylvania, in an interview. ``This signals the beginning of the end.'' ...
Andrew Jeffery /
Housing Woosh, Part Deux -- Reports are out this morning opining that Stockton, California represents a new hope for housing recovery. Hoping Stockton will lead the housing recovery is about like saying Alex Smith will lead the niners to the Super Bowl. It lacks a link to reality.

The recent rise in home sales transactions, especially in high foreclosure areas, is primarily attributable to the billions of dollars raised by hedge funds and other distressed investors. They're starting to get pressure to put the money to work. It's not evidence homebuyers are stepping back into the market.

Funds are trying to arbitrage the house, buy it at 60 cents on the dollar from a desperate bank and sell it for 80 on the open market.

The problem is, the marginal home buyer in those areas does not have the 20% down payment it now takes to buy a home, even at 'discounted' prices.

Transactions may rise, but mortgage backed securities don't pay bond holders with realtor sales commissions.

If the bottom is called by the right media outlets, sellers still waiting on the sidelines will flood the market, trying to get out in a market that's not completely frozen.

Woosh, part deux, coming to a housing market near you in early 2009.

Hedge funds investing in delinquent mortgages -- Many claim that they can alter terms of loans much easier than banks

Guess who holds your mortgage now? It's your friendly neighborhood hedge fund.

Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar...
Will the housing-rescue law help you? -- Legislation aims to help more borrowers avoid foreclosure

Questions and answers about the Hope for Homeowners Act of 2008, signed into law by President Bush Wednesday to try to steer as many as 400,000 struggling homeowners away from foreclosure:

Q: What exactly will the legislation do?

A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home's current value. The FHA will insure a total of $300 billion of the loans over a three-year period...
Bush Housing Law: Cheap Compared to the Alternatives - Rick Newman, Seeking Alpha
Housing Doom blog:
Illegal Population Plummets- Housing Vacancies Will Rise -- This [decrease in illegal-immigrant population] will have an adverse affect on the housing market. This represents a large number of renters, homeowners and consumers who are no longer participating in the U.S. economy. This population outflow can only serve to increase foreclosures, as some homeowners leave the U.S., and landlords have more difficulty renting out their properties.

Whatever your opinion on immigration issues, this can only spell more problems for housing.
NY Times:
Terrible Timing for a Hotel Boom -- A record number of hotels are opening this year, and the timing could not be worse...

Until recently, the industry was in the midst of a major boom, and it was during those good times that the hotel companies made plans to build many of the new rooms...

Nationwide, hotel occupancy levels have been hovering around 65 percent, down about 5 percentage points from last year, according to Smith Travel Research...

The industry now has about 6,000 new hotels, with nearly 800,000 rooms, under development, a 27 percent increase from last year, according to Lodging Econometrics ...
America's Most Overpriced ZIP Codes -- In San Jose, Calif., home to Silicon Valley and some of the highest home values in the country, a bumper sticker reads, "Dear God, one more bubble before I die."

Chances are the car's driver lives in Willow Glen, a neighborhood with a small-town feel, Spanish-style single family homes and a main street with sidewalk cafes and locally owned shops. To live there, residents are paying the city's highest prices relative to what they could pay to rent similar properties in the same area. When you compare mortgage payments to the value of a similar home on the rental market, the price to buy is 26.1 times higher, one of the biggest differences in the country.

Willow Glen is one example of a neighborhood where homeowners are still taking chances on future appreciation--and paying a premium above and beyond their neighbors for that confidence. . .
Seeking Alpha:
Breaking Down the Case-Shiller Index -- "Home prices down a staggering 16%!" and "Property values plummet!" are what the headlines read after the Case Shiller report was posted on Tuesday, July 29. Perhaps, it is the media's obsession with de-moralizing investors, or maybe it is our custom of judging all of our economic reports on a year over year basis, but we urge investors to take the headlines with a grain of salt (they are just trying to get your attention). Homebuilder stocks climbed 7% on average on Tuesday during trading following the report because, believe it or not, it was good news.

The May Case Shiller index, which measures average home prices taken from a sampling of 20 U.S. cities, was down 15.8% from last May, but was only down 0.9% from April. The last time the index saw such a small month to month decline was in September 2007. In today's housing market, falling prices are completely expected, and the fact that the decline decelerated in May is a slightly positive step towards a correction.

A key part of the report is that seven out of the twenty cities sampled showed month to month price increases. Denver, Atlanta, Boston, Minneapolis, Charlotte, Portland, and Dallas showed modest improvements. These results show a regional nature of our nation's housing crisis. It is the areas such as Las Vegas, Miami, and Los Angeles, which were, and continue to be, the hardest hit regions...

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. . .

Tuesday, July 29, 2008

Housing/Subprime/Credit Roundup — July 29, 2008

Items of Interest:

Home prices down 15.8% in past year, S&P says -- Seven of 20 cities tally monthly price gains in May, Case-Shiller data show . . .

Home prices in 20 major U.S. cities have fallen a record 15.8% in the past year, as prices dropped in all areas tracked by the Case-Shiller home price index, Standard & Poor's reported Tuesday.

Prices in 10 cities fell 16.9% in the past year.
Prices thus are at the same levels as they were in the summer of 2004, which means four years of appreciation have been effectively wiped out. Prices are down 18.4% from peak levels seen two years ago.

Home prices fell 0.9% in May compared with April, although seven of the 10 cities showed a month-to-month increase, which David Blitzer of S&P termed a "possible bright spot." The pace of the monthly decline has slowed for three months in a row, having peaked at 2.6% in February.

Prices in the so-called bubble regions continued to plunge at a rapid pace in May.
Prices in Miami fell 3.6%, while prices in Las Vegas and Phoenix fell by more than 2.5%. On the other hand, prices rose 1% in Atlanta, Boston, Denver and Dallas...

The Big Picture:
Record Low Annual Declines for Case Shiller Index -- Home price data continued to worsen in the US through May 2008. Unlike some of the foolishness heard from the perennial bottom callers, prices are actually accelerating to the downside. . .
Case-Shiller home price index thru May 2008----
May Case-Shiller Housing Numbers -- Probably the most disheartening of the data is how much of the gains from '04 to now have been given up. The Composite 10-City index is now at its lowest levels since June 2004 . . .

May 2008 Case-Shiller Housing Numbers----
Wall Street Journal:
Amid Housing Slump, Glut Eases Slightly -- Rising Foreclosures, Tighter Credit Still Pushing Down Prices; Economists Don't Expect Big Boost From Congressional Package

The number of homes on the market is finally falling in much of the U.S., but tight credit and a flood of foreclosures are still pushing home prices down.

Making things worse, a sputtering economy is destroying jobs. That means even more foreclosures and fewer potential home buyers.

Mark Zandi, chief economist at Moody's Corp., says he doesn't expect a major rebound in home sales and prices before the spring of 2010. "The recovery will vary considerably across the country, with California recovering quickly and Florida much more slowly," Mr. Zandi says. . .

Wall Street Journal:
Housing Inventory Falling, But Outlook is Bleak -- WSJ's quarterly survey of housing data ...

WSJ: quarterly survey of housing data----
Wall Street Journal:
Merrill Aims to Raise Billions More -- Firm Dumps Mortgage Assets as Crisis
Drags On; Another Big Write-Down

Merrill Lynch & Co. agreed to sell more than $30 billion in toxic mortgage-related assets at a steep loss, hoping to purge its balance sheet of problems that continue to plague the giant brokerage firm.

The move was described by a person close to Merrill as an effort to "lance the boil" that has resulted in more than $46 billion in write-downs since June 2007. Dumping the assets for just 22 cents on the dollar will result in a write-down of $5.7 billion. That is an ominous sign for other Wall Street firms and commercial banks trying to get rid of loans and securities in a market flooded with distressed assets.

Faced with another leak in its balance sheet, Merrill also announced late Monday it would sell $8.5 billion in new common stock. The sale will dilute existing Merrill shareholders by about 38% -- and is additionally painful because the firm will have to make extra payments to an investor that bought shares at a much higher price in an offering last December...
Housing Wire:
Merrill Makes Latest Mortgage Purging Attempt
Can Merrill Make It Out Alive?
Wall Street Journal:
Banks Act to Aid Mortgage Lending -- 'Covered Bond' Plan Of Four Firms Seeks To Boost Financing

Four of the nation's largest banks will begin issuing a type of debt the Bush administration has been pushing as a way to help reinvigorate the housing market.

On Monday, Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co., said they would begin issuing so-called covered bonds, a popular method of financing in Europe that could make more mortgage financing available in the U.S.
NY Times:
Worried Banks Sharply Reduce Business Loans -- Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001...
Kevin Depew / Minyanville:
The Credit Crunch, What's Next? -- The New York Times got in on the action as well, noting that banks are curtailing loans to American businesses, "depriving even healthy companies of money for expansion and hiring."

Scanning the Times piece caught the following: "credit tightening . . . scarcity of credit . . . access is restrained . . . struggle to secure finance . . . loan growth slowing . . . back to basics . . . new era of caution"

Welcome to the reality of the ongoing Credit Crunch. This is stage two; the Main Street impact from the unwinding of the Wall Street debt bubble. . .

Monday, July 28, 2008

Housing/Subprime/Credit Roundup — July 28, 2008

Items of Interest:

Countrywide Financial peddled influence to Congress.Dan Golden /
Angelo's Many "Friends" -- Countrywide Financial didn’t just make bad loans to bad customers, it peddled influence to Congress. Inside the scandal that rocked the Hill.

The Countrywide V.I.P.-loan scandal went far beyond a few members of Congress. An exclusive look inside C.E.O. Angelo Mozilo's secret effort to curry favor with lawmakers, politicians, and others who could influence the company's fortunes...

In January 2004, Richard Aldrich, a California state appeals court judge, decided to refinance his 8,200-square-foot house next to a Jack Nicklaus-designed golf course at the Sherwood Country Club in Westlake Village. He turned to a prominent Sherwood member: Countrywide Financial chief executive Angelo Mozilo. . .

Countrywide’s generosity to Aldrich reflected a broader strategy. Through a program that provided loans on favorable terms to V.I.P. borrowers, the nation’s largest mortgage lender curried favor with politicians, government officials, and business partners who were in a position to influence policy, profits, or public opinion. While some may not have been fully aware of the special terms, many took the bait. Some, including Aldrich, appear to have skirted or violated conflict-of-interest rules or ethics policies. . .

Senate passes landmark housing bill -- Controversial measure aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie. Bush is likely to sign it soon.

The Senate on Saturday overwhelmingly passed a landmark housing bill that will offer up to $300 billion in loans for troubled homeowners and establish a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac.

The House passed the bill on Wednesday just hours after President Bush reversed his long-standing vow to veto the bill. Bush is expected to sign it soon. . .
How housing rescue bill can help you -- The legislation - likely to be enacted soon - devotes $300 billion to helping troubled homeowners avoid foreclosure...

Wall Street Journal
Two Alternatives to Foreclosure
-- The housing legislation that is close to becoming law may help as many as 500,000 cash-strapped homeowners avoid foreclosure, by assisting them in refinancing into more-affordable government-backed mortgages.

But since many struggling borrowers may not qualify, people facing foreclosure should also familiarize themselves with two other options: "short sales" and "deed in lieu of foreclosure" transactions. . .
Bill Fleckenstein, MSN Money:
The Repugnant Bailout Nation -- There seems to be little outrage as the US, a country where free enterprise is supposed to reign, moves to nationalize losses without even contemplating reform.

We are at another moment when those of a bullish persuasion, whose financial muscle memory was developed under former Federal Reserve Chairman Alan Greenspan, are determined to put lipstick on the pig at every opportunity.

As soon as any facet of each financial minicrisis ends -- whether that be in certain subprime lenders, certain Alt-A lenders, certain monoline insurers or certain banks -- folks act as though all is well, even as financial institutions continue to implode. . .
The Big Picture
Revisiting Housing Seasonality & Bottom Callers -- Recall that back in March, we noted in passing that both Bloomberg and the WSJ had misinterpreted the Existing Home Sales data. I said bluntly they both "got it wrong." The spin doctors at the NAR scored an unquestionable propaganda victory, with a front page WSJ article that omitted the year over year data.

That led to some back and forth between myself, the reporters, and a senior editor. Our email conversations led me to the inescapable conclusion that many finance journalists simply don't understand statistics, especially seasonality. (See Existing Home Sales, Non Seasonally Adjusted, Explained). . .
Calculated Risk:
Graphs: Existing Home Sales
Gary North / Lew Rockwell:
Ben Bernanke’s Hush Money -- The bailout of IndyMac’s depositors will probably deplete 10% of the FDIC’s reserves.

Congress will back up the FDIC if the FDIC ever (1) runs out of T-bills to sell (2) to raise money (3) to pay off depositors of insolvent banks. But where will Congress get this money? From the Federal Reserve System, if lenders will not fork over the money.

The Federal Reserve System backs up Congress. This is the heart of the threat to the solvency of the dollar.

The $4 billion that the FDIC will pay to a handful of depositors at IndyMac is hush money. It is paid to them to silence every other depositor in the country. "Don’t spread rumors about any insolvent bank." Why not? "Because, in a fractionally reserved system, all of them are technically insolvent." They are all borrowed short and lent long...

Friday, July 25, 2008

Housing/Subprime/Credit Roundup — July 25, 2008

Items of Interest:

Timothy R. Homan / Bloomberg:
New-Home Sales in the U.S. Fell 0.6% to 530,000 Pace in June -- New-home sales in the U.S. in June were higher than forecast and the number of properties on the market dropped by the most in four decades, indicating builders are making some headway in clearing out inventories.

Purchases decreased 0.6 percent to a 530,000 pace, from an upwardly revised 533,000 in May, the Commerce Department said today in Washington. A separate report showed orders for durable goods unexpectedly rose in June.

Builders are offering more incentives and lower prices to attract buyers and help reduce a glut of unsold properties. Still, stricter lending rules and rising mortgage rates may prevent sales from rising much more in coming months.

``We may have not touched bottom yet in the housing market, but we're clearly not in any freefall,'' Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report.

Economists forecast sales would decline to a 503,000 pace, from a previously reported 512,000 for May, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 480,000 to 530,000. . .

Infectious Greed:
Mortgage Market Week in Review

Realty Check:
New Home Sales: Why Revisions Keep Housing Picture Unclear

Foreclosure filings up 120% -- 220,000 homes were lost to bank repossessions in the second quarter, and the annual forecast for 2008 will have to be revised upward.

As foreclosures continue to soar, 220,000 homes were lost to bank repossessions in the second quarter, according to a housing market report Friday issued by RealtyTrac.

That's nearly triple the number from the same period in 2007.

A total of 739,714 foreclosure filings were recorded during that three-month period, up 14% from the first quarter, and 121% from the same period in 2007. That means that one of every 171 U.S. households received a filing, which include notices of default, auction sale notices and bank repossessions.

"Most areas of the country are seeing at least some increase in foreclosure activity," said James Saccadic, CEO of RealtyTrac, an online marketer of foreclosed homes. "Forty-eight of 50 states and 95 out of the nation's 100 largest metro areas experienced year-over-year increases in foreclosure activity." . . .
Steve Forbes, Forbes:
Bust Up Fannie Mae and Freddie Mac -- The Treasury/Fed/Congressional rescue of Fannie Mae and Freddie Mac is only a stopgap. Unless fundamentally restructured, these two debt-bloated giants will sooner or later blow up. The once implicit, now explicit, government guarantee for these two quasi-government entities was the reason that they could be leveraged to the hilt, with a debt-to-equity ratio of almost 25-to-1. Instead of just packaging mortgages and selling them off, the companies kept hundreds of $billions in these instruments in their own portfolios to fatten profits--and enrich their politically connected managers and political allies. They also went into the junk mortgage business, buying more than $170 billion worth of dodgy paper.

The Bush Administration should vigorously push to have Fannie and Freddie recapitalized and broken up into 10 to 12 new companies, with their ties to the government completely severed...

Current shareholders could ultimately recover their losses, and taxpayers could eventually get most, if not all, of their money back. In fact, Uncle Sam might even make a profit. . .
Joseph Stiglitz, Financial Times
Fannie and Freddie's Free Lunch - Much has been made in recent years of private/public partnerships. The US government is about to embark on another example of such a partnership, in which the private sector takes the profits and the public sector bears the risk. The proposed bail-out of Fannie Mae and Freddie Mac entails the socialisation of risk – with all the long-term adverse implications for moral hazard – from an administration supposedly committed to free-market principles. . .
Infectious Greed:
The Top 7 Things Every Home Buyer Should Know..... -- everyone who is looking to buy or sell in today's market needs to know:

4. Any interest rate that starts with a 6 is a good number...

6. Don't buy a house today if you aren't going to stay there at least 7 years.

7. It really is a good time to buy a house. No, I'm not turning into a National Association of Realtors choir boy. . .
Housing Doom blog:
Cramer: “You Have To Buy A House”
-- "The Federal Housing Authority will put $300 billion to work to help homeowners with exotic loans and that will put a bottom in housing. “I was the first guy that said torch your house for the insurance money. I am now telling you that between now and the next six months you have to buy a house."

CNNMoney: 10 house-selling secrets --Secrets of a house stager. . .
Wall Street Journal: Cashing In on Real Estate, It's Still Possible
Mish's ... Trend Analysis:
FDIC Chairman Sheila Bair Is Out Of Control -- In a sad twist of irony Sheila Bair is accusing blogs of being "out of control".

Sadder still is the fact that San Francisco Business Times writer Mark Calvey agrees. Please consider the incredibly inane article FDIC learns it ignores bloggers at its peril.
The federal agency insuring bank deposits learned that it can't afford to ignore the blogs following its seizure this month of IndyMac Bank, the largest bank failure since the 1980s.

"The blogs were a bit out of control," Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the San Francisco Business Times after a speech in San Francisco this week. . .

Thursday, July 24, 2008

Housing/Subprime/Credit Roundup — July 24, 2008

Items of Interest:

Housing Wire:
Existing Home Sales Continue Freefall -- Sales of previously-owned U.S. homes fell to a 10-year low in June, according to data released Thursday by the National Association of Realtors. Existing-home sales — which include single-family, townhomes, condominiums and co-ops — fell 2.6 percent to a seasonally-adjusted annual rate of 4.86 million units in June from a pace of 4.99 million in May, and are 15.5 percent lower than the 5.75 million-unit rate recorded one year earlier.

Gloomy numbers, to be sure. But there are hordes people just waiting to buy on the sidelines, realtors say.

“A recent online survey of realtors shows nearly a quarter of potential home buyers are waiting on the sidelines,” said NAR President Richard Gaylord. “However, timing the market can be very tricky, which is why home buyers should always have a long-term view to build wealth.” ...

The Big Picture:
Existing-Home Sales Fall to 10 Year Low; Shadow Inventory Grows -- Now for the really scary part: Shadow Inventory. The glut of homes for sale is likely much larger than reported. Inventory counted by the Realtors group only includes foreclosures that have been listed on the multiple listings service. The enormous number of REOs, auction properties, defaults and foreclosures not listed ARE NOT IN THIS DATA.

Because foreclosures aren't included in the data at all (they are not sold through realtors' MLS service) it is likely that the total inventory of houses for sale is APPRECIABLY HIGHER THAN REPORTED.

I expect we will be hearing more about the Shadow Inventory over the next few quarters . . .

Realty Check, CNBC:
Existing Home Sales: A Look At Numbers That Weren't There

Stocks Crushed After Existing Home Sales Hit 10-Year Low

2.2 million vacant homes for sale -- Census Bureau report shows percentage of vacant houses available for sale and of Americans who own homes were relatively unchanged in 2nd quarter. . .

Some 2.8% of homes, excluding rental properties, were empty and on the market from April through June . . .
This Can't Be Helping Real Estate --'s 30-year average US fixed mortgage rate was at 6.5% yesterday, which is the highest it has been since April 2002. New highs for rates can't be tempting potential home buyers to pull the trigger.

US fixed mortgage rate was at 6.5% on July 23, 2008----
Editorial / Wall St. Journal:
The New Housing Bill Hammers Taxpayers -- Combine a housing meltdown with election-year politics and the results were not going to be pretty. Add a crisis in confidence in Washington's favorite quasipublic companies and what we're getting is a rout for taxpayers, especially those who kept their heads during the housing mania.

The House yesterday passed a housing bailout by 272-152. The White House has thrown its reservations overboard and is begging to sign this boondoggle, despite the less-than-veto-proof majority. A few brave souls in the Senate are threatening a filibuster, which is where the last hope lies for stripping the most egregious and expensive provisions from this monster.

Even conservative estimates by the Congressional Budget Office say the cost for this bailout will run to $41.7 billion, with $16.8 billion offset by higher taxes. No one has any idea of the real cost. . .
Colin Barr, Fortune: Why We Tolerate Bailouts
Maya Jackson Randall / Dow Jones Newswire:
Group Sees $40.3 Billion FY09 Budget Gap For US States -- The cumulative fiscal-year 2009 budget shortfall for U.S. states is projected to triple to $40.3 billion as the economic slump makes it more difficult for states to collect revenue, according to a report released Wednesday.

The National Conference of State Legislatures (NCSL), which authored the report, said the cumulative budget gap previously has been higher than the 2009 projection - in 2003 and 2004, for instance, in the wake of the 2001 economic downturn.

Still, the group - which represents legislators of states, commonwealths and territories - sees the latest data as a worrisome sign that state finances are deteriorating faster than expected as the nation grapples with turmoil in U.S. financial and housing markets. . .
Fannie and Freddie rescue, a bailout for whom? -- The rhetoric from the Washington backers of the Fannie Mae-Freddie Mac rescue effort has been consistent on one front: this is no shareholder bailout.

But that message seems to have been lost on the stock market, particularly holders of Fannie Mae and Freddie Mac shares. After being on an apparent trajectory toward zero just over a week ago, both stocks have more than doubled since the beginning of last week when the Bush administration unveiled its plan to shore up the two lynchpins of the U.S. housing market.

"The real winners are the investors who bought Fannie and Freddie shares last week," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey...

Wednesday, July 23, 2008

Housing/Subprime/Credit Roundup — July 23, 2008

Items of Interest:

U.S. House Approves Fannie-Freddie Bill by 272-152 -- The U.S. House of Representatives approved legislation designed to shore up confidence in Fannie Mae and Freddie Mac and stem the record surge in mortgage foreclosures, sending the bill to the Senate.

House members voted 272-152 in favor of the measure, which lawmakers and administration officials expect will be passed in the Senate and signed into law by President George W. Bush. The bill gives Treasury Secretary Henry Paulson power to inject capital into Fannie Mae and Freddie Mac and provides for a federal agency to insure refinanced home loans.

Paulson overcame opposition within his own party after some Republicans said the bill risked taxpayer funds and fell short on overhauling the mortgage-finance firms. The Treasury chief said the measure was critical to U.S. financial-market stability and persuaded Bush to drop a veto threat.

``This is the most important piece of housing legislation in a generation,'' Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, told reporters in Washington today. Paulson said he was ``pleased'' with the vote and would ``look forward to working with the Senate'' to get the bill to Bush's desk this week...

Infectious Greed:
Fannie and Freddie: One HELOC to Go, Please -- Kind of ironic, isn't it? The bailout plan for mortgage-struck Freddie and Fannie includes something awfully similar to the sort of home equity line of credit (HELOC) nuttiness that got the mortgage market in trouble in the first place. Maybe we should call it a NELOC -- a national equity line of credit. Good thing the U.S. still has some.

Housing Doom blog:
Bush To Sign “Carte Blanche” For Fannie And Freddie
Paul Gigot, Wall Street Journal
The Fannie Mae Gang -- Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.

Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing...

George Bush: Wall Street Got DrunkIf Bush thinks that 'Wall Street Got Drunk' does that mean that Alan Greenspan was the bartender?

NY Times:
A Private, Blunter Bush Declares, ‘Wall Street Got Drunk’ -- When he talks about why the economy is ailing, President Bush often turns to euphemism, citing “challenges in the housing and financial markets.” But Mr. Bush offered a far blunter assessment last week at a closed Republican fund-raiser in Houston: “Wall Street got drunk.” ...

“Wall Street got drunk — that’s one reason I asked you to turn off your TV cameras,” the president said at the fund-raiser, held at a private home on Friday to benefit Pete Olson, the Republican who is challenging Representative Nick Lampson. “It got drunk, and now it’s got a hangover. The question is, How long will it sober up and not try to do all these fancy financial instruments?”

The sentiments were no different from those Mr. Bush has voiced in public, said Tony Fratto, the deputy White House press secretary...
Miya Shay / Houston Political Blog:
What did Bush say at Olson Fundraiser? — The President's folks didn't let the press in, but we got some exclusive video of POTUS talking up a storm at Pete Olson's fundraiser on July 18th. Click and take a look. transcript below the video. — What President Bush said...

Greg Mitchell / The Huffington Post:
“Wall Street Got Drunk”: ‘Banned’ Bush Video Surfaces

Jules / Beltway Confidential:
Bush: Economy was “drunk,” now “hungover”

Andy Barr / The Hill's Blog Briefing Room:
Bush on Economy: ‘Wall Street Got Drunk’

Think Progress:
ThinkFast: July 23, 2008 — “Wall Street got drunk,” …

James Gerstenzang / The LA Times President Bush Blog:
Bush: ‘Wall Street got drunk’
Thomas Sowell / Real Clear Politics:
Bankrupt 'Exploiters' -- In one of those front-page editorials disguised as "news" stories, the New York Times blames "the lucrative lending practices" of banks and other financial institutions for helping create the current financial crisis of millions of borrowers and of the financial system in general.

It must take either a willful determination to believe whatever they want to believe or a cynical desire to propagandize their readers for the New York Times to call "lucrative" the lending practices that have caused many lenders to lose millions of dollars, some to lose billions and some to go bankrupt themselves.

Blaming the lenders is the party line of Congressional Democrats as well. What we need is more government regulation of lenders, they say, to protect the innocent borrowers from "predatory" lending practices...

Tuesday, July 22, 2008

Housing/Subprime/Credit Roundup — July 22, 2008

Items of Interest:

U.S. Lawmakers Reach Deal on Fannie, Freddie Bill -- U.S. lawmakers reached agreement on a rescue plan for Fannie Mae and Freddie Mac that the House may vote on tomorrow, Representative Barney Frank said.

Under a modified version of proposals made by the Bush administration, the Treasury Department would gain authority to inject capital into the two largest U.S. mortgage finance companies, through loans and equity investments.

The Treasury would be barred from providing aid that would cause a breach in the federal debt ceiling under the agreement, a constraint aimed at limiting any taxpayer losses. The plan would give Treasury Secretary Henry Paulson power to restrict the companies' ability to pay dividends and require regulatory approval of the salaries of top executives.

``The package we have got is fully acceptable to Treasury,'' along with lawmakers in the Senate, said Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee. ``Nobody is for everything that's in it or got everything in it he wanted, but we negotiated a lot with the Treasury and the Senate.'' ...
Fannie, Freddie rescue could cost $25B -- Congressional Budget Office puts possible price tag on Bush administration plan to stabilize mortgage finance giants - says 50% chance money won't be needed.

The Congressional Budget Office on Tuesday estimated that a government plan to stabilize mortgage giants Fannie Mae and Freddie Mac could cost government coffers an average of $25 billion.

The CBO said it thinks there is probably a better than 50% chance that the Treasury would not need to step in. In addition, it said there is nearly a 5% chance that Freddie and Fannie's losses would cost the government $100 billion.

CBO's $25 billion cost estimate is an average based on "the path of housing prices in the next several months." They considered three scenarios: prices stabilize, grow modestly or decline steeply.

The CBO report came out one day before the House is expected to debate and vote on a rescue plan proposed by Treasury Secretary Henry Paulson last week. Paulson asked Congress to give the Treasury broad, but temporary powers intended to provide a liquidity and capital "backstop" for the two government-sponsored enterprises (GSEs)...
Fannie, Freddie Rescue May Cost Taxpayers $25 Billion, CBO Says

The Big Picture:
Pimco's Gross: Fannie, Freddie Mortgages 'Excellent'

Jessica Johnson, SeekingAlpha:
Short Interest in Fannie/Freddie Rises
Paulson: bailing out Fannie Mae and Freddie Mac is crucial to stabilizing marketsReuters:
Markets depend on housing recovery: Paulson -- Treasury Secretary Henry Paulson said on Tuesday financial markets will remain under stress until the U.S. housing market's slide ends and called the health of mortgage finance enterprises vital to the recovery of the U.S. economy.

In remarks at the New York Public Library, Paulson cautioned that working through market turmoil will take additional time.

"Our markets won't make progress in a straight line and we should expect additional bumps in the road," Paulson said. "Until the housing market stabilizes further, we should expect some continued stresses in our financial markets," he added.

Paulson said restoring confidence in government-sponsored finance giants Fannie Mae and Freddie Mac is crucial to stabilizing markets rattled by a year-old credit crunch and a sharp fall in home values...
Money Issue: How safe are credit unions?CNNMoney:
Credit unions: Safe as a banks -- 1. How safe are credit unions?

Is it possible to find out about credit unions? How safe are they at this time? - Willie, Florida

Credit Unions are just as safe a bet as banks are. Instead of the FDIC guarantee, you have the NCUA to back up your accounts up to the same amounts.

The NCUA stands for the National Credit Union Association. According to them, there have been six credit union failures so far this year, but as long as you have $100,000 or less in an individual account or $250,000 or less on a retirement account, you're insured. Plus, credit unions may have marginally better interest rates and rates on CDs, savings accounts and money markets.

To find a credit union in your area, go to
Todd Harrison / Minyanville:
Random Thoughts: Civil Liberties -- Will Wall Street and the First Amendment Collide?

The lawsuit against analyst Dick Bove brought a disturbing conundrum to bear.

It's endemic of the shifting social mood. Nobody asked questions when the screens were green. Once the wheels wobble on the wagon, everyone is quick to point a finger...

What we’re now seeing extends beyond accountability—it talks to civil liberties.

It speaks to the First Amendment.

If a market participant spreads false information and profits from it, he or she deserves to get the book thrown at him.

Painting the entire short side of the market as villains—and holding them accountable for horrible performance—not only damages the market machination, it challenges a fundamental premise that our country was founded on...
BankAtlantic Sues Analyst Richard Bove for Defamation

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