Tuesday August 26 Housing and Economic stories

Top Stories:

In Central Valley, Ruins of Housing Bust - (www.nytimes.com) ELLIE WOOTEN, the likable mayor of this likable Central Valley city, is on her way to the office when her cell phone rings. A constituent wants her mortgage payments reduced, and is hoping that the mayor has some clout with her lender. Although Merced has one of the highest foreclosure rates in the country, this borrower isn’t in such dire straits. She’s not even behind on her mortgage. But her oldest daughter is turning 18, which means an end to $500 a month in child support. She just wants a better deal. The mayor hangs up and shrugs: “It’s a surprise her daughter is turning 18? You’d think she could have planned ahead.” But hardly anyone in Merced planned very far ahead.

Not the city, which enthusiastically approved the creation of dozens of new neighborhoods without pausing to wonder if it could absorb the growth. Certainly not the developers. They built 4,397 new homes in those neighborhoods, some costing half a million dollars, without asking who in a city of only 80,000 could afford to buy them all. Obviously not the speculators turned landlords, who thought that they could get San Francisco rents in a working-class agricultural city ranked by the American Lung Association as having some of the worst air in the nation. And, sadly, not the local folk who moved up and took on more debt than they could afford. They believed — because who was telling them differently? — that the good times would be endless.

Appraisers still under the gun to 'hit the numbers' - (www.chicagotribune.com) CONGRESS IS CONTRIBUTING TO THIS BEHAVIOR AS THEY ARE PRESSURING LENDERS TO WORK OUT NEW LOANS WITH BORROWERS. MANY OF THESE BORROWERS HAVE NEGATIVE EQUITY SO LENDERS ARE HESITANT. Have the real-estate valuation shenanigans and inflated home appraisals that characterized the boom years disappeared? Are mortgage loan officers and realty agents—even individual home sellers—continuing to influence or attempting to interfere with appraisals despite new federal rules that ban such behavior? Ask appraisers and many will tell you: It's still business as usual. Attempts to encourage inflated appraisals remain common, though some techniques have become subtle. "Absolutely appraisers continue to get pressured" to hit the numbers needed to push transactions to closing, said Bill Garber, government affairs director for the Appraisal Institute, the country's largest professional organization representing appraisers.

The Great Consumer Crash of 2009 - (www.prudentbear.com) I hate to tell you, but the storm has reached your location and it is a Category 5 hurricane. The levees are leaking. Ignore it at your own peril. The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end. The American consumer will not go without a fight. For the last seven years the American consumer has carried the weight of the world on its shoulders. This has been a heavy burden, but when you take steroids it doesn’t seem so heavy. The steroid of choice for the American consumer has been debt. We have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live above our means. It has been a fun ride, but the ride is over. We can’t get steroids from our dealer (banks) anymore.

After examining these charts it is clear to me that the tremendous prosperity that began during the Reagan years of the early 1980’s has been a false prosperity built upon easy credit. Household debt reached $13.8 trillion in 2007, with $10.5 trillion of that mortgage debt. The leading edge of the baby boomers turned 30 years of age in the late 1970’s, just as the usage of debt began to accelerate. Debt took off like a rocket ship after 9/11 with the President urging Americans to spend and Alan Greenspan lowering interest rates to 1%. Only in the bizzaro world of America in the last 7 years, while in the midst of 2 foreign wars, would a President urge his citizens to show their patriotism by buying cars and TVs. When did our priorities become so warped?

Fannie and Freddie's blame game - (www.iht.com) Whenever the mortgage finance giants Fannie Mae and Freddie Mac find themselves in a tough spot - and boy, are they in a tough spot now! - they always seem to find a way to blame "the mission" for their problems. "We exist to expand affordable housing," Fannie Mae says on its Web site, and although it also lists its original mission - providing liquidity for the American housing market - it is the former that has long been the companies' trump card. That mission of creating affordable housing is the reason that Alan Greenspan could testify as chairman of the Federal Reserve, year after year, that Fannie and Freddie had become so large, and took so much risk, that they could one day damage the American financial system - and be utterly ignored by the same members of Congress who otherwise hung on his every word. The mission is why the companies were able to run roughshod over their regulator for years, and why the Bush Administration was unable to rein them in, even after an accounting scandal. The mission is why their two chief executives, Daniel Mudd at Fannie and Richard Syron at Freddie, could take home a combined $30 million last year, while presiding over one of the great financial disasters of all time, posting billions in losses with no end in sight.

Ex-BOE Official Says Fed Serves Wall Street - (www.bloomberg.com) No news here. Of course Fed has proven time and time again that it primarily serves Wall Street interests.

Cramer Calls Another Housing Bottom…Puh-leeeze. Enough is Enough! - (www.ml-implode.com) - I believe you are intentionally deceiving people. Calling the bottom to housing using a variety of bad indicators and rampant speculation is wrong. I am giving you the benefit of the doubt by saying you are ‘deceiving’ people because there is no way you are this naive about the housing and mortgage markets. In your research story published yesterday in RealMoney and TheSreet.com, you use the fact that 14 million homes were “purchased” between 2005 and 2007 and those being the ‘bad lending years’ for the basis of a hypothesis that the housing market will bottom seven months from now. You also talk about new home builders reducing their supply, the FDIC offering mortgage modifications and FHA being the savior. If you are a headline reader, perhaps these things do sound great. But, in reality very little of your analysis or conclusions have substance or are likely to come into play in any significant way. First, you are overly attached to ’subprime’ when anyone following the story knows that the Alt-A and Prime universes are beginning to blow and they dwarf the subprime universe. Second, you overemphasis ‘fraud’ when we all know that while fraud is a big factor, lender negligence and negative-equity are the leading contributors to loan default especially among higher grades of paper. I should have stopped reading after the ’14 million homes purchased’ statistic was thrown out. This is because purchases were only about 33% of the market at any given time and millions more refinanced into exotic loans than ever purchased a home using them. In addition, prices are down near 2004 levels and approaching 2003 levels quickly. There were exotic loans during those years as well, so only focusing on homes ‘purchased’ from ‘2005-2007′ captures a small portion of the at-risk market.

Too big to fail? We'll see about that - (www.latimes.com) The second phase, now underway, involves fire sales of assets by banks and brokerages that have no choice but to shrink themselves because there isn't enough willing and able capital out there to buttress every damaged balance sheet that needs it. And as assets are dumped at fire-sale prices, that will trigger markdowns of similar assets, further weakening the finances of banks and brokerages across the board. "We are approaching a solvency crisis that we think is about to result in an avalanche of asset sales," the hedge fund manager says.

Realtor Ethics - (patrick.net)
First and foremost on this agenda is do not ever, ever, never under any circumstances give the slightest smidgeon of a passing thought that brokers fix commission prices. The first and only video we viewed trained us specifically on the "commission objection", to basically say whatever you want, other than "this is a typical charge for the industry" and certainly NOT "this is what everyone charges". This message from NAR took up the first hour of a four-hour training class on ethics. I was sitting there just shocked.

Secondly, we never ever under any circumstances say anything negative about other Realtors. What? If I have personal knowledge that some agent is a real snake, I can't warn people? That's right folks. Any and all such comments must be sent to the "Ethics Committee" and dealt with behind closed doors. Hmmm. What about the public's best interest? This second message took up
another hour of this four-hour seminar. So there you go. I'm a full-fledged, ethical Realtor. We don't fix prices and we don't talk bad about each other. Would you like to see some property? It's not that I think these are bad ideas. But why are these two things the
very most important "ethical" topics in real estate? Am I missing something here or is something really missing? This just doesn't make sense, unless... hmmm...

NO. THAT couldn't be. Its just not possible that the most important thing to NAR leadership is staying in control and staying in power and covering their asses, even though they are not competent to run the organization. It just COULDN'T be smoke and mirrors. It COULDN'T be that their time has passed, that they need to evolve and adjust to the vastly different new paradigm in which
the world now operates. Could someone please tell NAR that the iron-fist approach is just passe? With so much emphasis and focus placed on CYA, is it any wonder NAR has missed so many opportunities to be a voice for transparency and honesty? That's not even on the radar.


Other Stories:

What Will Mac & Mae Cost You and Me? - (www.nytimes.com) This is the huge arena where participants buy and sell insurance to protect against defaults by issuers of debt. Some $62 trillion of insurance has been written, with a fair value of $2 trillion at the end of 2007. Back to the bailout du jour. Many analysts hypothesize that the Treasury will put cash into Fannie and Freddie, receiving dividend-paying preferred shares in return. Such an investment has occurred before, as noted last week by UBS research analysts in Mortgage Strategist, a weekly research report from the firm. In 1954, when the government began to change Fannie Mae into a shareholder-owned company, preferred stock was issued to Uncle Sam to help finance the process. Those shares were retired in 1968 when Fannie Mae became a publicly traded corporation. If preferred shares are again issued in exchange for taxpayer cash, common stockholders could lose the most because new preferred shares would take precedence in the payment of dividends and if the companies were liquidated.
$3.42 million down to $2.5 million in 3 years - (bubbletracking.blogspot.com)
When Cutting Price, Take Big Bite, Not Bunch of Nibbles - (www.washingtonpost.com)
Higher Fees for Mortgages - (www.nytimes.com)
Another Bank Closed by Regulators - (www.bloomberg.com)

The Best Mortgage Deals Around: VA Loans - (www.ml-implode.com) - The Veterans Administration (VA) has a mortgage guarantee program that is available to the more than 23.8 million U.S. veterans ...
State Sues Large Mortgage Lender - (www.ml-implode.com) - Indiana has sued Countrywide Home Loan Inc., claiming deceptive and misleading practices in thousands of loans issued in the st...
Obama's Dueling Views on Economy - (www.ml-implode.com) - Some of the confusion stems from Obama’s own strategy of presenting himself as a postpartisan figure. A few weeks ago, I joined...
Another Look at the Labor Market - (www.ml-implode.com) - ``What is clear is that while the employment series might not be evidencing a severe dropoff, the hours series is. This is relev...
Biden just ripped on "a government that does nothing while they watch the housing market collapse" - (www.ml-implode.com) - ""We can't afford four more years of a government that does nothing while they watch the housing market collapse. As you know, i...
The CDARS of Lebanon: Did Gramm-Leach-Bliley Doom FDIC? - (www.ml-implode.com)
Homeowners may be able to refinance mortgages - (www.ml-implode.com)
Fannie Doesn’t Want New York Subprime, Either - (www.ml-implode.com)

Central Bankers See More Credit Losses - (www.bloomberg.com)
How Mortgage Giants Lead Market Deeper Into Crisis - (www.washingtonpost.com)
Is The Government Stupid Enough? - (2.bp.blogspot.com)
Movie Review: I.O.U.S.A. - (optionarmageddon.ml-implode.com)
A Quick Review of I.O.U.S.A. - (www.seekingalpha.com)
Why we are in the early innings - (LARGE PDF - sastocks.files.wordpress.com)
Expect strong economy in 5 years - (www.inrich.com)

At the Fed, a Debate Over Countering Inflation Grows Louder - (www.nytimes.com)
Ex-BOE Official Slams Fed, Sparking Hottest Jackson Hole Debate - (www.bloomberg.com)
U.S. and Global Economies Slipping in Unison - (www.nytimes.com)
Ex-BOE official says Fed rate cuts went too far - (www.reuters.com)
In the Ruins of the Housing Bust - (www.nytimes.com)
Fed Chairman Urges Broader Market Oversight - (www.nytimes.com)
Fed conference speakers say US central bank too responsive to Wall Street on bailout issues - (www.chicagotribune.com)
Finding the Mess Behind the Mess - (www.nytimes.com)
Bernanke Urges Broader Powers For Central Bank - (www.washingtonpost.com)
Manhattan looks abroad for property saviours - (www.ft.com)
Driving Is Down, but Auto Insurance Rates Are Rising - (www.nytimes.com)
Property sector points to deepening downturn - (www.ft.com)
Uncertainty Over Fannie and Freddie - (www.nytimes.com)
Food Makers Scrimp on Ingredients In an Effort to Fatten Their Profits - (online.wsj.com)
Collateral damage - (www.signonsandiego.com)
SEC looks at timing for accounting rules change - (www.boston.com)
Detroit pushes for a $50-billion bailout - (www.latimes.com)
Detroit pushes for a $50-billion bailout - (www.latimes.com)
Fannie and Freddie threat to banks - (www.ft.com)
Moody's ratings cut latest blow to Fannie, Freddie - (www.reuters.com)
What Will Mac ’n’ Mae Cost You and Me? - (www.nytimes.com)
A Mission Goes Off Course - (www.nytimes.com)
Danish Central Bank, Grouping Acquire Roskilde Bank - (www.bloomberg.com)
Ex-Bank of England official slams Fed - (business.smh.com.au)
Libor Signals Credit Seizing Up as Banks Balk at Money Lending - (www.bloomberg.com)
Banks Hit as Fannie, Freddie Get Downgrade - (online.wsj.com)
Higher Fees for Mortgages - (www.nytimes.com)
That Student Loan, So Hard to Shake - (www.nytimes.com)
Columbian Bank and Trust of Kansas Shut by Regulators - (www.bloomberg.com)
Treasury wants GSEs shareholder-owned: source - (www.reuters.com)
Fannie Mae and Freddie Mac - (www.ft.com)
Risk-Taking Hits Investors In Leveraged-Loan Market - (online.wsj.com)
Bond fundraising costs soar - (www.ft.com)
Real estate appraisers still feel pressured to inflate valuations - (www.latimes.com)
Hedge fund Ore Hill limits redemptions - (www.reuters.com)
Appraisers still under the gun to 'hit the numbers' - (www.chicagotribune.com)