KeNo's Housing and Economic Portal: Monday April 25 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Forbes: San Francisco's Economic Outlook among the Worst - (www.baycitizen.org) Forbes is out with a new list of the top "15 cities where the economies are getting worse." Number six: San Francisco.: (By this Forbes means the government-defined San Francisco metropolitan area, which includes Oakland and Fremont but not San Jose). To make its call, Forbes used data provided by Moody's and the government, including the unemployment rate, the percentage of mortgages that are 90 days delinquent, migration and job projections. With an aenemic job growth projection of 0.34 percent and a net population loss of 3,030 expected this year, San Francisco appeared to be slightly better off than Bakersfield and slightly worse than Sacramento. And if that makes it seem like a lot of California cities are among the worst, we're just getting started. Riverside was in for the worst economic news in the country, Forbes said, followed by Stockton, which was named the most miserable city for the second time in three years. Los Angeles was number four. "All of these cities have double-digit unemployment rates and paltry job growth projections. All except LA have housing markets in which prices continue to decline or remain stagnant," Forbes reported.

Federal Reserve lent Huge Sums to Foreign Banks - (www.bloomberg.com) U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya. Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion. The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets. “The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Mortgage paperwork mess: the next housing shock? - (www.bloomberg.com) Who really owns your mortgage? Scott Pelley explains a bizarre aftershock of the U.S. financial collapse: An epidemic of forged and missing mortgage documents. It's bizarre but, it turns out, Wall Street cut corners when it created those mortgage-backed investments that triggered the financial collapse. Now that banks want to evict people, they're unwinding these exotic investments to find, that often, the legal documents behind the mortgages aren't there. Caught in a jam of their own making, some companies appear to be resorting to forgery and phony paperwork to throw people - down on their luck - out of their homes. In the 1930s we had breadlines; venture out before dawn in America today and you'll find mortgage lines. This past January in Los Angeles, 37,000 homeowners facing foreclosure showed up to an event to beg their bank for lower payments on their mortgage. Some people even slept on the sidewalk to get in line. So many in the country are desperate now that they have to meet in convention centers coast to coast.

Housing Will Remain a Government Program - (www.ibtimes.com) Recently, the Obama Administration seemed to flash a rare sign of laissez-faire thinking when it issued a report calling for the "winding down" of Fannie Mae and Freddie Mac, the two taxpayer-guaranteed institutions now responsible for backing at least 90% of the US mortgage market. In its press release, the Administration acknowledged that the private sector should be the "primary source of mortgage credit," and that their goal is to "bring private capital back to the mortgage market." While such a pro-market stance is welcome, astute observers should recognize the intentions as empty rhetoric. Unfortunately, government domination of the housing sector is already a fait accompli, and any serious attempt to remove artificial support will result in the kind of political pitfalls no politician wants to face. After decades of federal life support, the US housing market has become an invalid that is unable to fend for itself. When the absurd housing bubble finally popped in 2006, prices logically began to plummet back to earth. After national price declines of some 30%, a wave of "stimulus" dollars stopped the free-fall in mid-2009. But after less than one year of "recovery," it looks like prices are headed south again. The widely-followed Case-Shiller Home Price Index fell 3.1% in January; prices are now at their lowest level since the housing market made its first bottom in April 2009. Sales of existing homes were off nearly 10% in February, and new homes sales were at a record low. As the economy worsens, there can be little doubt that housing is headed for a double-dip. The government's "make housing affordable" approach to market intervention is the root of the entire problem. To a large extent, this intervention takes the form of mortgage purchases by government-sponsored Fannie and Freddie. Through these entities, nearly all new loans for homes are now destined for public ownership. When these entities buy a mortgage, they are doing so to help the borrower get the needed financing. They have only a casual interest in the investment quality of the transaction. This is very different motivation from the private investor, who is primarily concerned with getting paid back; and on that basis, wouldn't go anywhere near US housing.

New Rule: Banks Exempt from New Mortgage Rules - (Mish at globaleconomicanalysis.blogspot.com) Long awaited FDIC "skin-in-the-game" mortgage rules are out. Amusingly, banks are largely exempt from the new rules. On one hand it's hard to make this stuff up, on the other hand it seems laughably easy to believe. My ears say the proposal sounds like it came straight from "The Onion". Please consider FDIC’s plan for ‘skin-in-the-game’ loans: Federal regulators drafting tighter underwriting standards for mortgages are planning to exempt banks from a key rule if they sell loans to two seized mortgage-buying giants. The long-awaited proposal is due to be publicly released by the Federal Deposit Insurance Corp. Tuesday, and the proposal was obtained ahead of that by MarketWatch. At issue is a provision in the Dodd-Frank Act that requires banks to have “skin in the game” — namely, by retaining 5% of the risk of loans they package and sell. The goal is to eliminate what had been a problem underlying the financial crisis, where lenders packaged and sold subprime mortgages of dubious quality. But lawmakers who drafted the legislation also included a measure that would exempt certain high-standard mortgages from the risk-retention rule if their loans met certain high underwriting standards. According to the proposal obtained by MarketWatch, loans sold to mortgage-refinance giants Fannie Mae and Freddie Mac would carry no risk-retention requirement as long as the mortgage giants remained in government conservatorship. Fannie and Freddie were both taken under conservatorship in September 2008, at the height of the financial crisis.