KeNo's Housing and Economic Portal: Tuesday January 24 2017 Housing and Economic stories

TOP STORIES:

The Mortgage Market’s $1 Trillion Pocket of Worry - (www.wsj.com) Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, crossing that threshold amid rising warnings for one corner of the housing market. These mortgages are insured by the Federal Housing Administration and typically go to borrowers with small down payments and lower credit scores. Banks have pulled back from issuing those loans and from packaging them into bonds sold to investors. The result: In the first three quarters of 2016, banks accounted for 9% of mortgage dollars originated by the FHA’s top 50 lenders, versus 62% for all of 2010, according to Inside Mortgage Finance. Nonbank lenders accounted for 80% of mortgage bonds backed by single-family FHA loans in July 2016, versus 9% the same month in 2010.

Obama Slashes Mortgage Insurance Premiums For Subprime Borrowers With Just 10 Days Left In Office - (www.zerohedge.com) What do you do when a quick rise in mortgage rates suddenly threatens to tame home buying demand from subprime borrowers who, despite the lessons from the past, are still purchasing homes, en masse, with only 3.5% down payments and just enough monthly cash flow to cover mortgage payments? Well, if you're the Obama administration then you simply socialize the problem and force those higher mortgage costs on taxpayers. Anything less would just be a hateful attempt to deny minority and low-income citizens their "right" to home ownership. And while the Obama administration isn't directly passing out tax dollars to subprime borrowers to make their monthly mortgage payments, its recent decision to lower the FHA's annual mortgage insurance premiums by 0.25% is essentially the same thing since tax payers are still on the hook for the same risk but receiving lower premiums in return. Per Bloomberg: The FHA doesn’t make mortgages. It sells insurance, paid by borrowers, on loans protecting investors in case of default. The program allows borrowers to get a mortgage with a down payment of as little as 3.5 percent and a credit score of as low as 580, on a scale of 300 to 850. That makes it one of the most forgiving mortgage programs and popular among first-time home buyers.

China’s Holdings of US Treasuries Plunge at Historic Pace - (www.wolfstreet.com) China’s holdings of US Treasury securities plunged by a stunning $66.4 billion in November 2016, after having already plunged $41 billion in October, the US Treasury Department reported today in its Treasury International Capital data release. After shedding Treasuries for months, China’s holdings, now the second largest behind Japan, are down to $1.049 trillion. At this pace, it won’t take long before China’s pile of Treasuries falls below the $1 trillion mark. It was China’s sixth month in a row of declines. Over the 12-month period, China slashed its holdings by $215.2 billion, or by 17%! Japan’s holdings of US Treasuries dropped by $23 billion in November. Over the 12-month period, its holdings are down by $36.3 billion.

US Government Caught Massively Fabricating Student Loan Default Data - (www.zerohedge.com) US Government and our broken Dept of Education propagating fake news?

How bad was the data fabrication? When The Wall Street Journal analyzed the new numbers, the data revealed that the Department of Education had inflated the Student Loan repayment rates for 99.8% of all colleges/schools in the country. i.e., virtually every single # was made to appear better than it actually was. At more than 1,000 colleges/schools (1/4 of all schools), at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years. This is a stunning number and suggests that the student loan crisis is far greater than anyone is stating publicly. It also means that the US taxpayer will be on the hook for hundreds of billions in government-funded loans once attention finally turns to who is expected to foot the bill for years of flawed lending practices.

How Deutsche Bank Made −$462 Million Disappear - (www.bloomberg.com) On Dec. 1, 2008, most of the world’s banks were still panicking through the financial crisis. Lehman Brothers had collapsed. Merrill Lynch had been sold. Citigroup and others had required multibillion-dollar bailouts to survive. But not every institution appeared to be in free fall. That afternoon, at the London outpost of Deutsche Bank, the stolid-seeming, €2 trillion German powerhouse, a group of financiers met to consider a proposal from a team led by a trim, 40-year-old banker named Michele Faissola.

The scion of an Italian banking family, Faissola was the head of Deutsche’s global rates unit, a division that created and sold financial instruments tied to interest rates. He’d been studying the problems of one of Deutsche’s clients, Italy’s Banca Monte dei Paschi di Siena, which, as the crisis raged, was down €367 million ($462 million at the time) on a single investment. Losing that much money was bad; having to include it in the bank’s yearend report to the public, as required by Italian law, was arguably much worse. Monte dei Paschi was the world’s oldest bank. It had been operating since 1472, not long after the invention of the printing press, when the Black Death was still a living memory. If investors were to find out the extent of its losses in the 2008 credit crisis, the consequences would be unpredictable and grave: a run on the bank, a government takeover, or worse. At the Deutsche meeting, Faissola’s team said it had come up with a miraculous solution: a new trade that would make Paschi’s loss disappear.

OTHER STORIES:

China’s Holdings of U.S. Treasuries Drop by Most Since 2011 - (www.bloomberg.com)