Thursday August 19 Housing and Economic stories

Top Stories:

Fannie & Freddie Trading Should Be Halted: Cramer - (www.cnbc.com) Cramer is trying to blame short-sellers for his bad picks (as usual). Jim Cramer urged that trading in Fannie and Freddie be stopped because the shares were being manipulated by short-sellers. "This is an outrage," Cramer said shortly after the market closed. "It's very clear that someone knows what's happening." Cramer blamed regulators, including the Securities and Exchange Commission and New York Stock Exchange, for not stepping in to halt trading in the shares on the possibility of insider trading. "They used to stop trading when it was clear that there were some people who knew what was going on and others don't," he said. "There's no cop on the beat anymore. "There's so much confusion, so much money changing hands," he added. "It's just so unfair to the little guy."

If anyone needs proof that Cramer is not genuine (in his support of the little guy) and is a complete moron, see the videos below:
1) New Cramer recommendation (very bad) telling users not to exit Bear Stearns 1 week before meltdown
2) Cramer Admits He Was Wrong on Bear Stearns – But he tries to justify his bad advice.
3) Then (Nov 2006) - Jim Cramer’s prediction of housing market – Arguing that anyone calling for real estate to fall is an idiot
4) Now (August 2007) - Jim Cramer complaining the Fed is not doing enough to bail out his buddies in Wall Street

Rescue May Cost $40 Billion: Gross - (www.cnbc.com) The Treasury Department will need to provide Fannie Mae and Freddie Mac as much as $40 billion to recapitalize the troubled mortgage giants, PIMCO bond magnate Bill Gross said. Gross said on CNBC that the public backstopping of the government-sponsored enterprises will be the only way the Treasury can restore investors' confidence that the two secondary market companies will not fail.
"They need to hear not only that they're willing to stand behind Fannie and Freddie but that their money is going to do that," he said. "In terms of the amount, 15 to 20 billion per institution in the form of preference or preferred stock that hopefully will be at the same level of the existing preferred stock." The preferred stock will give taxpayers priority in getting the money bank as Fannie [FNM 4.40 -1.61 (-26.79%) ] and Freddie [FRE 3.25 -0.92 (-22.06%) ] continue along in their business of buying mortgages from banks that don't wish to have the liabilities on their balance sheets. Consequently, investors holding common shares will be virtually wiped out, as the market is indicating in its current bargain-basement trading of the stocks.

Fannie, Freddie - Point of No Return - (www.cnbc.com) Good video clip. Shares of Fannie Mae and Freddie Mac are reaching the point of ultimate support -- zero. Ron Ianieri, chief options strategist at the Options University shares his view of why it's probable, not just possible that Fannie and Freddie will be nationalized.

FDIC Will Modify Mortgages for Some IndyMac Borrowers - (www.bloomberg.com) The FDIC and Sheila Bair have over-stepped their duties and are throwing away 200 years of contract law in the US by modifying contract terms. The Federal Deposit Insurance Corp. may lower mortgage interest rates for delinquent IndyMac Federal Bank FSB borrowers after suspending foreclosures on $15 billion in loans it's managing as successor to the failed lender. The FDIC, which is running IndyMac while seeking a buyer, may also extend repayment terms or base payments on reduced principal to help borrowers, FDIC Chairman Sheila Bair said today in a conference call with reporters. The program might serve as a ``catalyst to promote more loan modifications for troubled borrowers throughout the country,'' Bair said. ``We hope to keep tens of thousands of troubled borrowers in their homes and avoid the negative consequences that foreclosures can have on the broader economy,'' she said.

Many go bust in mortgage meltdown - (www.crainsnewyork.com) The mortgage crisis that sparked a wave of foreclosures is now responsible for a rising tide of bankruptcies across the city. Fueled in large part by the number of homeowners who could not keep up with monthly payments on subprime loans, 14,407 people filed for bankruptcy in the New York area during the first seven months of this year, compared with 11,026 in that period last year, according to bankruptcy court records. While the number of bankruptcies is not as high as it was during the previous economic downturn in 2001, the filings this time around are increasing at a greater rate, rising 31% from January through July versus the year-earlier period. "I've never seen it this bad," says Gregory Messer, a Brooklyn bankruptcy attorney. "There were times where there were more bankruptcies, but I don't know if I've ever seen so many people prepared to walk away from their houses." Bankruptcies are typically prompted by catastrophic events such as accidents, illnesses or divorce. The latest wave is different because the driving force is the mortgage crisis. Hit with monthly payments on subprime loans that suddenly increased by hundreds of dollars or more, many New Yorkers, already squeezed by rising gas and food prices, maxed out their credit cards in order to meet their obligations.

Fannie's Perilous Pursuit of Subprime Loans - (www.washingtonpost.com) As It Tried to Increase Its Business, Company Gave Risks Short Shrift, Documents Show. In January 2007, as years of loose mortgage lending were about to send the nation's housing market into devastating decline, Fannie Mae chief executive Daniel H. Mudd wrote a confidential memo to his board. Discussing the company's successes, Mudd said one of Fannie Mae's achievements in 2006 was expanding its involvement in the market for subprime and other nontraditional mortgages. He called it a step "toward optimizing our business." A month later, Fannie Mae outlined plans to further expand its activities in the subprime market. The company recognized the already weak performance of subprime loans but predicted that they would get better in 2007, according to another Fannie Mae document. Internal documents show that even late in the housing bubble, Fannie Mae was drawn to risky loans by a variety of temptations, including the desire to increase its market share and fulfill government quotas for the support of low-income borrowers. Since then, Fannie Mae's exposure to loosely underwritten mortgages has produced billions of dollars of losses and sent its stock price plummeting, prompting the federal government to prepare for a potential taxpayer bailout of the company. This month, Fannie Mae reported that loans from 2006 and 2007 accounted for almost 60 percent of its second-quarter credit losses.

Wall Street's bad reputation - (www.marketwatch.com) Get this: Part of John McCain's vision for America is cleaning up the financial-services industry, or as his Aug. 5 television ad "Broken" puts it: "He'll reform Wall Street."
The Republican presidential nominee's Democratic counterpart, Barack Obama, is attacking the other flank. On July 29, he blamed "irresponsible decisions" on Wall Street for the nation's economic woes. He's also been beating the drum that the industry needs more regulation. Forget for a moment that the securities industry is the third-biggest source of campaign donations to both McCain and Obama, according to Federal Election Commission data released July 28. Ignore that McCain and Obama served as senators while Wall Street was making all of those "irresponsible decisions." McCain and Obama are only feeding on the meat that Wall Street has given them. The blame for the nation's current economic crisis is shared by homeowners, banks, the government and the real estate market, but Wall Street, with its willingness to create a market for worthless loans, is an easy target, especially when everyone is feeling the pinch of a market that's fallen more than 15% from its highs.

Crony image dogs Paulson's rescue effort :: CHICAGO SUN-TIMES ... - (www.chicagotribune.com) Note: the article is no longer available on the Sun Times website, not even in a cache on google. Maybe accusing the head of the US Treasury of crony-ism isn't good business for the Sun-Times.) Luckily, the story has been copied in its entirety here J

Lawrence B. Lindsey on US Crony Capitalism - (www.itulip.com) - "Excellent video of Lawrence B. Lindsey, ex-Governor of the Federal Reserve System from 1991 to 1997, on CNBC followed by an article on Paulson and crony capitalism in which he is quoted." As financial storm signals appeared the last 18 months, some Bush officials urged drastic reform of Fannie Mae and Freddie Mac. But according to internal government sources, Treasury Secretary Henry Paulson objected because it would look "too political." The Republican administration kept hands off the government-backed mortgage companies that are closely tied to the Democrats. Paulson is a Republican, but as head of the Goldman Sachs investment bank, he had close ties with Democratic-dominated Fannie Mae. After prominent Democrat James A. Johnson left Fannie after eight years as chairman and CEO, he was named head of Goldman Sachs' compensation committee, helping set Paulson's abundant salary there. That connection clearly was not enough for Paulson to consider recusing himself from dealing with the crisis threatening Fannie, Freddie and the whole American economy. He structured the bailout and was on the phone last weekend encouraging leading investment bankers to buy Freddie Mac bonds. Financial consultant Lawrence Lindsey, President Bush's former national economic director, told clients Sunday, "Surely things are somewhat amiss when a country's finance minister plays bond salesman for a supposedly privately owned company." Testifying before the Senate Banking Committee on Tuesday, Paulson stressed the U.S. would purchase assets only if necessary. But relying on investment bankers could be awkward for Paulson because of indiscreet jubilation from his old company. "This is our bailout," a senior Goldman Sachs official told a Wall Street colleague this week, suggesting the firm will cherry-pick for mortgage bargains.

Paulson Playing Chicken With Markets - (www. nakedcapitalism.com) - “Hank Paulson’s gamble is that if the Treasury commits to investing in Fannie and Freddie [if required] it will never have to put money in,” said Alex Pollock, a fellow at the American Enterprise Institute... In other words, this was all meant to be a bluff. But the markets have called the bluff in very short order.

Even the 'comfortable' face need to alter spending habits - (www.csmonitor.com) Losses in home equity call for recalculation of net worth, and a return to reality. Bad news continues to batter the American consumer, from negative home equity to weak retail sales and rising claims for unemployment benefits. One in 3 homeowners who purchased homes since 2003 now owe more than what the property is worth, according to Zillow.com, an Internet service that values more than 80 million homes. The numbers are even more dismal for those who bought in 2006, with 45 percent now experiencing negative home equity. Equity holdings by households offer no cushion, falling a stunning 41 percent in value for the first quarter of 2008, according to the Federal Reserve's Flow of Funds Report. Announcements of Wall Street layoffs, bankruptcies of major US retail outlets, and even the decision by Starbucks to close 600 outlets has agitated Americans regarding their future employment. Reflecting the collapse in housing and equity values, household net worth has dropped for two consecutive quarters, as consumers increasingly depend on credit cards and consumer loans to maintain their lifestyles.

Large U.S. Banks May Fail Amid Recession, Rogoff Says - (www.bloomberg.com) The worst is yet to come in the U.S.,'' Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. ``The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.

FHA Share of Mortgage Apps Soars: MBA - (www.housingwire.com) - The government-insured share of mortgage applications tripled in the past year according to data compiled by the Mortgage Bankers Association and released Monday afternoon; relying on the group’s weekly application survey, the MBA said that of all mortgage applications accepted during the month of July 2008, 29.1 percent were for government-insured loans (mostly FHA) compared to 8.4 percent in July 2007.
News of the MBA data follows an HW story last week that found Ginnie Mae fixed-rate mortgage-backed securities issuance trumped similar issuance volume from Freddie Mac (FRE: 4.17 -5.01%) in July, and was running ahead of both Freddie and Fannie Mae (FNM: 6.01 -2.28%) to-date in August. Roughly 97 percent of FHA-endorsed mortgages are securitized via Ginnie Mae.
The government-insured share has been increasing since February 2007, the MBA said, but only since the beginning of this year has the share really exhibited significant increases; up from 9.4 percent in January. The MBA suggested that interest in government-insured mortgages still has room to run, however, relative to a record share of 43.8 percent of mortgage applications in February 1990.

Freddie Note Sale Crimps Treasurys - (online.wsj.com) - Financial weekly Barron's this week reported that a U.S. government bailout of the two mortgage-finance giants is increasingly likely. Freddie Mac had to jack up yields to entice investors, however. It sold the notes at 113 basis points over comparable Treasurys, the highest premium it has ever offered for a five-year note. The notes yielded 4.172% at sale.

“Calling all cash: please report to AIG FP” - (www.ft.com) - The one financial industry that seems to be dodging the subprime bullet is insurance. Only a handful of companies have had their safety ratings knocked down because of an excessive exposure to Wall Street’s toxic waste. The vast majority has enough capital to withstand the known problems on their balance sheets, the rating companies all say. Turns out: not so much. At least, not so much for AIG. The world’s largest insurer. AIG is, in fact, a trainwreck, and the market is only just waking up to this. A note from Goldman analysts this morning might just be the wake-up call investors need. For an idea of tone, let’s flash through some of the headers: Don’t buy AIG. A dangerous balance sheet posing as an inexpensive entry point. There’s nothing to be feared except fear itself…and mortgages. Raising capital: Ultimate number too difficult to quantify. The “base case” scenario for AIG under Goldman’s analysis is a further $9bn in losses on their CDS contracts. That widens to $20bn under the more likely “stressed” scenario.


Other Stories:

Fed's Lacker Clashes With Paulson on Fannie, Freddie - (www.bloomberg.com) Richmond Federal Reserve Bank President Jeffrey Lacker called for ``demonstrably'' privatizing Fannie Mae and Freddie Mac, becoming the first Fed official to publicly clash with the Bush administration's strategy of keeping them as federally backed firms. ``I would prefer to see them credibly and demonstrably privatized,'' Lacker said today in an interview with Bloomberg Television. He agreed with former Fed Chairman Alan Greenspan's view that the two largest U.S. mortgage finance firms ought to be nationalized, then split up and sold off. Treasury Secretary Henry Paulson by contrast has tried to keep Fannie Mae and Freddie Mac in their current form as government-sponsored companies owned by shareholders. Lacker's remarks come as a slide in the firms' stocks and increase in their borrowing costs spur speculation the Treasury will intervene.
Real estate chaos hits appraisal industry - (www.sfgate.com) How much is your house worth in this turbulent market? That's the question on the minds of many Bay Area homeowners, but it's become increasingly tough to answer, even for the pros.
Instability in the region's housing market is making it difficult to determine values, according to mortgage brokers and real estate appraisers. "It's miserable," said Karen Mann, who runs a small East Bay appraisal firm called Mann & Associates. "I've been in the business 28 years, and this is the worst downturn I've seen."
No Limit to Greenspan's Once-In-A-Century Events - (www.bloomberg.com) Alan Greenspan has presided over more hundred-year events in the last 20 years than the rest of us do in a lifetime. As chairman of the Federal Reserve from August 1987 through January 2006, the Maestro was ahead of the pack when he sniffed out a secular increase in productivity growth, the result of a ``once-in-a-lifetime'' technological boom.
US bank 'to fail within months' - (news.bbc.co.uk)
Large U.S. Banks May Fail Amid Recession, Rogoff Says - (www.bloomberg.com)
Today's Negative-Equity Update - (www.seekingalpha.com)
Housing, Prices Raise Stagflation Risk - (www.bloomberg.com)

Want to Live in a Castle for $250k or Less? - (www.intlistings.com)
Blub.... blub.... blub..... - (market-ticker.denninger.net)

Mortgage Interest Deduction Benefits Rich Much More Than Middle Class - (www.pbs.org)

Housing Starts - (www.ml-implode.com)
First American Rolls Out Loss Mitigation Management Platform - (www.ml-implode.com)
Top Alt-A Mortgage Lenders in First Quarter 2008 - (www.ml-implode.com)
M3 Contraction - The Future Is Now - (www.ml-implode.com)
High borrowing costs defy Fed's interest rate cuts - (www.ml-implode.com)
Sharp US money supply contraction points to Wall Street crunch ahead - (www.ml-implode.com)
M3 Contraction - The Future Is Now - (Mish at globaleconomicanalysis.blogspot.com)
House building plunges to 17-year low in July - (money.cnn.com)
Regional banks see bond prices decline, interest skyrockets - (cincinnati.bizjournals.com)
Single-family housing permits fall to 26-year low - (www.marketwatch.com)
Russia says keeps buying Fannie, Freddie debt - (www.ml-implode.com)
Update: First Horizon Home Loans Becomes MetLife Home Loans - (www.ml-implode.com)
Drop in U.S. Housing Starts Due to Inflated June Figure, but Trend Still Downward - (www.ml-implode.com)

Corporations not pulling weight on taxes - (www.chron.com)
U.S. MBA's Mortgage Applications Index Fell 1.5% Last Week - (www.bloomberg.com)
Foreclosures likely skewing housing indicator - (www.ap.com)
Federal foreclosure-purchase program may fall flat in California - (www.latimes.com)
Wachovia Unloads Troubled Loans - (online.wsj.com)
Some Say Bailout of Housing Giants Is Inevitable - (www.nytimes.com)
Lehman’s secret talks fail to offload 50% stake - (www.ft.com)
Casinos' revenue growth levels off - (www.azcentral.com)
AZ Court: Home buyers can bypass developers, sue builders - (www.azcentral.com)
Lehman looked to the east - (www.nypost.com)
Goodyear to close 92 U.S. stores, cut jobs - (www.usatoday.com)
Faking the good life to get harder - (money.cnn.com)
Reliving the S&L Meltdown - (online.wsj.com)
Ringback tone sales to triple in four years - (www.cnet.com)

Fannie, Freddie Slump on Concern Bailout Is Likely - (www.bloomberg.com)
Crude Oil Rises After Gasoline Stockpiles Drop a Fourth Week - (www.bloomberg.com)
Treasuries Advance on Speculation U.S. Will Take Over Freddie - (www.bloomberg.com)
Gold Falls in N.Y. as Dollar Gains Against Euro; Silver Drops - (www.bloomberg.com)
U.K. holds few tools to revive a gloomy economy - (online.wsj.com)
Mortgage lending slump continues - (news.bbc.co.uk)
Saudi's economic cities under pressure to deliver - (www.iht.com)
BOE Panel Split Three Ways in Vote to Keep Rate at 5% - (www.bloomberg.com)
Shanghai soars on hopes of stimulus plan - (www.ft.com)
China raises power prices amid shortages - (www.ap.com)

Fannie, Freddie shares hit 18-year low on bailout fears - (www.reuters.com)
B of A, Goldman, Deutsche Bank Are Facing Greater Scrutiny In New York Auction-Rate Probe - (online.wsj.com)
The next credit crunch - (www.fortune.com)
Fannie, Freddie Bailouts May Hinge on Debt Rollover - (www.bloomberg.com)
Andor Hedge Fund Shutting Down - (online.wsj.com)
Hole in the funding - (www.boston.com)
Lavish New York City Condo Project Contends With Lenders' New Demands - (online.wsj.com)