KeNo's Housing and Economic Portal: Sunday September 5 Housing and Economic stories

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TOP STORIES:

The other trillion dollar bailout - (www.mybudget360.com) The trillion dollar bailout you didn’t hear about – Commercial real estate values plummet again yet banks hide losses. A $3.5 trillion financial disaster in the making. We are now proud owners of an AMC theater and Chick-fil-A. The latest data on existing home sales should tell you exactly where we are in this so called recovery. Average Americans are unable to purchase big ticket items without massive government subsidies. It is also the case that all the too big to fail banks are standing only because of the generous support of taxpayer money. Without large tax credits and the Federal Reserve buying down mortgage rates the housing market is extremely weak. Yet very few of the housing “analysts” actually bother to ask why they are weak in the first place. The employment market is in disarray and wages have fallen for everyone outside of the top 1 percent of income earners. The bailout fatigue is running out of steam but banks are using clandestine methods to offload trillions of dollars of commercial real estate to taxpayers. The next giant bailout is already happening but you probably haven’t heard about it. “TALLAHASSEE — Condo bills have flooded the Capitol. More than five dozen have been filed during the legislative session, as Florida grapples with its real estate crisis. But boil down the language of the proposals to help cash-strapped condo dwellers, and there are only a handful of ideas: Make it easier for investors to buy multiple units in empty buildings. Delay state-mandated upgrades. Discover ways to punish owners who don’t pay skyrocketing association dues.”

So instead of letting prices correct and allowing markets to set the actual price based on lower incomes, the government and specifically the banking and housing industry are trying to do everything to keep home prices inflated. Ironically they are using agencies that were intended to help low to moderate income buyers purchase, in essence, affordable housing. And if the prices don’t stay inflated, they offer big discounts only to their crony friends. So how exactly is this benefitting the typical American family? Over a year ago, the U.S. Treasury was secretly discussing “Plan B” about gearing up for a giant commercial real estate bailout. Not much was said about this in the mainstream media. Yet now we know that banks specifically the Fed are taking on incredible amounts of CRE loans onto their books. In other words, the bailout is already happening. Think this isn’t the case? We now own a mall out in Oklahoma:

How Bad Is It For Obama? Look How He's Completely Lost The New York Times - (www.businessinsider.com) The big political event of the weekend was Glenn Beck getting at least 100,000 to hear him talk about faith and restoring America, and all that stuff. And yes, the level of motivation on the right is bad news for the Democrats. But it's not just that the right is uber-motivated. One of Obama's key bases -- the NYT and its readers -- is throwing in the towel.

Check out this Krugman post where he wonders when Obama is finally going to do something bold on the economy... and then check out the dispirited comments. Here's one of the top-rated ones: I don't understand the inaction (both legislatively and use of his bully pulpit) either.... I can only HOPE, that the President knows something that everyone else doesn't. Barring that, then he isn't the person I voted for. Then go read this unsigned official editorial from the Times: Waiting For Mr. Obama. The first line: If President Obama has a big economic initiative up his sleeve, as he hinted recently, now would be a good time to let the rest of us in on it. Then go read this from the Week In Review section about Obama's rapidly dwindling policy options on the economy. It all seems pretty clear. Obama has lost the NYT and its readers. That's not his total but it represents an important one in terms support and money. His perceived failure to act with gusto on the economy is what did it.

Mortgage Fraud Is Rising, With a Twist - (finance.yahoo.com) New data suggests that mortgage fraud—which got tougher to pull off after the collapse of the U.S. real estate market—is returning in a big way. Data prepared for The Wall Street Journal by research firm CoreLogic, examining about seven million home loans made by hundreds of lenders, show that losses from mortgage fraud—ranging from falsified credit reports to identity theft—rose 17% last year after declining 57% in the two years after its 2006 peak. In 2009, $14 billion in loans, or about 0.7% of all mortgage loans made in the U.S., were originated with fraudulent application data. The figures are a fraction of the mortgage market, but the increase is sharp. CoreLogic, which tracks fraud only by mortgage value, examines about 7 million loans each year using a proprietary computer program that detects discrepancies in loan documents and predicts the likelihood of fraud. The real losses to banks won't be known for several years when banks are forced to write off the value of the loans' value. Some of CoreLogic's profits come from selling market research to lenders aiming to cut losses from mortgage fraud. Investigators and lenders say they are seeing a similar upswing in fraud. The Federal Bureau of Investigation in June indicted a Phoenix man for mail and wire fraud among other alleged crimes when the agency says he tried to steal a house from his landlord. Also in June, federal prosecutors in New Jersey charged 29 defendants—including 12 real-estate agents, four mortgage consultants, an appraiser, a bank employee and a mortgage broker—with wire fraud in an alleged scheme involving 17 properties in the state and losses of $5.5 million.

Judges Taking Tougher Line on Bank Bailouts - (blogs.nytimes.com) Everything was rolling along traditional lines. A bank broke the rules. The government found out. The company agreed to pay a fine and improve its behavior. And then the judge assigned to approve the deal blew his top. In a scene that is becoming increasingly common, Judge Emmet G. Sullivan of Federal District Court chewed out federal prosecutors at a hearing in Washington last week for a proposed settlement with Barclays, The New York Times’s Binyamin Appelbaum reports. “Why isn’t the government getting tough with banks?” he asked. Just one day earlier in the same courthouse, Judge Ellen Segal Huvelle refused to sign a $75 million settlement between the government and Citigroup, demanding, “Why would I find this fair and reasonable?” She ordered government lawyers to return with answers next month. The scoldings from the bench are a striking departure from a long tradition of judicial deference to settlements formulated by federal agencies, reflecting broad disenchantment not just with Wall Street, but with its government overseers. It is a pattern that began last year, when Judge Jed S. Rakoff of Federal District Court in Manhattan denounced the Securities and Exchange Commission for going easy on Bank of America, which the agency had accused of misleading its shareholders.

Frightened Sellers Who Missed the Market Lower Prices in a Panic - (www.irvinehousingblog.com) The spring rally is officially over as sales in Southern California have dropped dramatically. Sellers are getting frightened and greatly reducing their asking prices. The Federal Reserve and the government spent the last 18 months engineering a market bottom through a variety of market props. The powers-that-be hoped the market would support itself as the artificial props were removed. Well, it isn't working out that way. Home sales slump in July: Southern California sees a 21.4% drop in home sales from 2009 but tax credits skew the figures. [Before the article even starts, the writer has to put in some reassuring bullshit for nervous bulls. It goes downhill from here.]

August 18, 2010 -- By Roger Vincent, Los Angeles Times: Southland home sales fell dramatically in July as federal tax credits for buyers expired, yet the median home price declined only slightly from June.Volume always precedes price. In 2007 volume dropped off, inventory ballooned, and prices began to roll over. It was the beginning of a slide that went unabated until early 2009 when supply was constricted enough to prevent further declines. Since the bubble was not allowed to naturally deflate, we are awaiting another leg down to return us to reasonable valuations.