KeNo's Housing and Economic Portal: Sunday July 11 Housing and Economic stories

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TOP STORIES:

Senate OKs new buyer-bait closing deadline - (www.inman.com) While the Senate has amended HR 4213, the "American Jobs and Closing Tax Loopholes Act of 2010," to extend the closing deadline for the tax credit, it has not held a vote on the amended bill itself. Senate Democrats have reportedly trimmed $60 billion in spending from the bill in hopes of passing it this week. The House and Senate must resolve differences between previous versions of the bill passed in both chambers before it can become law. The Senate has amended a bill to give homebuyers who were under contract on a home purchase by April 30 an additional three months to close the deal and claim the federal homebuyer tax credit. Extending the deadline for closing from June 30 to Sept. 30 would allow lenders more time to clear a backlog of 180,000 homebuyers nationwide, said amendment sponsor Sen. Harry Reid, D-Nev. The amendment to HR 4213, the "American Jobs and Closing Tax Loopholes Act of 2010" -- which primarily extends unemployment insurance benefits -- was approved in a 60-37 vote Wednesday. The vote on the amendment was mostly along party lines, with only four Republicans in favor and one Democrat opposed. The Senate has not yet voted on the amended bill itself.

Fannie and Freddie: Hopelessly unproductive works - (www.theautomaticearth.blogspot.com) So, Fannie Mae and Freddie Mac are to be delisted from the NYSE. Stocks on the exchange must either act to boost the share price or delist if they show an average share price below $1 for over 30 days, which has been the case for Fannie Mae. It's hardly surprising that the companies should be perceived as virtually worthless, considering that they preside over about half ($5.5 trillion) of a mortgage market in terrible trouble. Moving away from even the limited accountability of public listing is also no surprise. Confidence games require reality to be obscured for as long as possible. While the move is being spun, especially in the case of Freddie Mac, as compatible "with a goal of conservatorship and the preservation and conservation of assets", in reality there is little future value to protect. Taxpayers have pumped in $145 billion already, as the alternative would have been a property price collapse. That is still clearly on the cards if support were to be withdrawn, hence the unlimited nature of the guarantee that has been offered, meaning unlimited liability for the taxpayer. Support has been greater than for other noted basket-cases such as AIG, and there is no end in sight to the red ink these companies seem capable of generating. A worst case scenario of $1 trillion in losses has been mentioned, based on a further 20% decline in house prices and a tripling of the default rate. However, I find it inconceivable that such a mild outcome could be viewed as a worst case. Bubbles always show an undershoot to the downside as they implode. Even if one takes an incredibly optimistic view of the scale of the bubble, defining it as only the last few years of excess, that undershoot will cause larger losses than 20% from here. Likewise the default rate is set to skyrocket, never mind merely triple. The losses accruing to Fannie and Freddie are likely to be vastly larger than even the most pessimistic mainstream commentators can imagine.

Some Are Born on Third Base But Think They Hit A Triple - (www.hussman.net) Barry Switzer, the former head coach at the University of Oklahoma, once said "Some people are born on third base, and go through life thinking they've hit a triple." Among the fascinating aspects of the recent economic "recovery," probably the greatest is the failure of analysts to understand that this growth is none of the private sector's doing. Wall Street seems to have no concept at all that every bit of growth we've observed over the past year can be traced to government deficit spending, with zero private sector expansion when those deficits are factored out. As I noted last week, if one removes the impact of deficit spending, "the economy has recovered to the point where the year-over-year growth rate since early 2009 now matches the worst performance of any of the 50 years preceding the recent downturn." In effect, Wall Street's is seeing "legs" where the economy is in fact walking on nothing but crutches. Similarly, it is apalling that Ben Bernanke can say with a straight face that many of the "investments" made by the Fed have been repaid "and some have even made a profit," without immediately noting that the two primary sources of these repayments have been, directly or indirectly, the U.S. Treasury, and savers who are receiving near-zero interest on bank deposit instruments.

Bankers Let Empty Houses Rot. How Do We Fix This? - (www.721.seiu.org) Fixing the mess the banks have created here in Los Angeles means cleaning up the blight they've left in our neighborhood. In California, lawmakers passed the Mortgage Relief Bill (SB 1137), a state law that mandates banks maintain foreclosed properties or be fined. The bill authorizes the City of Los Angeles to impose $1,000 per violation per day in penalties for failure to maintain a property. On December 11, 2009, the City Council unanimously voted to implement the enforcement program. It would establish registration and maintenance requirements and associated fees and fines for properties in foreclosure in the City of Los Angeles.

Will HOA Lawsuits Compel Lenders to Foreclose on Shadow Inventory? - (www.irvinehousingblog.com) The amend-extend-pretend policies of lenders is fraught with unintended consequences. The obvious costs to lenders is lost revenue from squatters who get to stay in their homes without making any payments, but lenders are not the only parties involved who aren't getting paid. Local taxing authorities and Home Owners Associations (HOAs) also are not being paid. The taxes will get paid eventually because property tax obligations survive the foreclosure. Whatever bills the old owners left behind are the responsibility of the new owner. Bills due to HOAs are only paid after mortgage holders are paid in full. Since most delinquent homeowners are underwater, there is no equity left over to pay the HOA bills, and any delinquent amounts are not paid by the new owner. The costs of extinguished HOA dues are passed on to existing homeowners who are still paying their bills. Home owners associations have only one recourse to compel an owner to pay their dues: foreclosure. In a normal real estate market -- one where home owners have equity -- the threat of foreclosure is an effective threat; however, when owners do not have equity and they are not paying their mortgage, HOAs have no leverage. HOAs are generally unwilling to foreclose because their ownership position after the foreclosure is subordinate to the surviving mortgages -- an HOA foreclosure does not wipe out the superior liens. In other words, HOAs can take possession of an underwater property -- which provides them no benefit -- and in the process wipe out any claims to back HOA dues. Taking ownership of a property they cannot sell to a dues-paying owner does not help them.

OTHER STORIES:

Fannie and Freddie money pit may suck down $1 trillion of taxpayer cash - (www.finance.yahoo.com)

FBI busts billion-dollar fraud; Federal Reserve's multi-TRILLION dollar fraud still ignored - (www.cnn.com)

Fed Ponders What To Do If Re-Inflation Fails - (www.Mish)

Housing bubble in Australia? Not if you ask their Central Bank - (www.perthnow.com.au)

Czech National Bank more honest; says prices rose too high and should fall - (www.radio.cz)

Currency Fall Curbs Europe's Taste for New York Property - (www.online.wsj.com)

Chinese debt binge is fuelling a dangerous property bubble - (www.smh.com.au)

Welcome to the post-buyer-bait housing malaise - (www.marketwatch.com)

The "5 second" listing scam to get short sale permission - (www.calculatedriskblog.com)

The Next Housing Crisis - (www.truthiscontagious.com)

Long road ahead for housing "recovery" - (www.chicagotribune.com)