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2010-10-21T23:25:00.000-07:00

Fed to push for QE2 and economists guess the price tag to be an astonishingly large sum, 3 Trillion Dollars. These "Quantative Easing" purchases are to continue to prop up the financial center and the majority of the Fed Board will probably vote for it.

The FHFA also has been busy of late adding another 148 Billion for preferred stock purchase agreements of Freddie and Fannie. All this with my guess that home prices will continue to decline for another 5-10% over the next 2 quarters.

B of A has announced this week it is going to continue forward with foreclosures this week since they could find no wrong doing in their internal investigation. What a surprise?

Changes Coming from Fannie Mae and Freddy Mac

2010-03-22T20:55:00.000-07:00

The Obama Administration to outline changes for Fannie and Freddie. There will be a hearing on this tomorrow but the Obama Administration will only "outline broad principles".

In a hearing Tuesday the Obama Administration for an exit strategy for Fannie Mae and Freddie Mac. "Its clear that Fannie and Freddie, as they currently exist, should be put out of existence, which means the important question is what kind of entities public and private will replace them.," says Rep Barney Frank (D-Mass), chairman of the House Financial Services Committee. He has called Timothy Geithner to testify at the hearing before his committee on how to do that.

The Administration will outline broad principles for the future of the mortgage market at the hearing, including stronger consumer protections and explicit guarantees for any government backstop of mortgages.

"The housing finance system cannot continue to operate as it has in the past," Mr. Geithner said in prepared testimony. The administration won't issue a detailed overhaul proposal until later in the year.

In 2008 the government siezed both Freddie and Fannie and currently has 5 Trillion dollars of mortgages that they own or guarantee.

Lehman Top Executives to Face Criminal Charges

2010-03-12T14:28:00.001-08:00

Anton Valukas, the examiner appointed by the Bankruptcy Court to audit Lehman Brothers books, released yesterday his report of Lehman's Road to Bankruptcy. This detailed report cites many deliberate material misstatements the firm made in securities filings and public statements about its financial condition that former CEO Richard Fuld and former CFO Erin Callan will almost certainly face criminal charges, and former CFOs Chris O'Meara and Ian Lowett could face charges as well.

After Valukas detailed and footnoted these instances in the millions of pages he reviewed and the 100+ interviews he conducted. Based on this it is hard to see how the top executives can avoid being convicted.

Richard Fuld has claimed he knew little about the "repo 105 transactions" which are at the core of the fraud. These transactions clearly lied about the financial status of Lehman Brothers and were used for over 2 years to hide troubles at Lehman. Sorry Richard but I don't buy your excuse and it appears that the Justice Department doesn't buy it as well.

Ernst and Young, the accounting firm charged with verifying the financial books of Lehman could also face a malpractice lawsuit by creditors for failure to audit these fraudulent transactions, although they will escape any criminal charges.

In all the top executives are all likely to be indicted and possibly convicted of Federal Securities Fraud. I can only hope no plea bargain deal comes out, as I for one would like to see these crooks thrown in jail! Let's hope more firms are audited and more executives are jailed as well. Wall Street is a greedy place whose greed has brought so much grief to main street American that they all deserve to go to prison. Well that's my opinion anyway.

Government Short Sale Program

2010-03-10T20:44:00.000-08:00

Both the New York Times and the Wall Street Journal ran stories recently about the Treasury HAFA program, part of the HAMP program (Reported on this blog on 2/17/1010) and some of the key points of the program.

One of the main concerns are those properties with 2nd liens or subordinate liens on the property. Typically foreclosures net the 2nd lien holders only a small amount or no amount at all, so what happens to most of the troubled properties that have a 2nd on them. Here are excerpts from the Treasury HAFA Guidelines. This program begins on April 5th, 2010.

"Subordinate Liens - We will allow up to 3% of the unpaid balance of each subordinate lien in order of priority, not to exceed a total of $3000, to be deducted from the gross sale proceeds to pay subordinate lien holders to release their liens. We require each subordinate lien holder to release you from personal liability for the loans in order for the sale to qualify for this program, but we do not take any responsibility for ensuring that the lien holders do not seek to enforce personal liability against you. Therefore we recommend that you take steps to satisfy yourself that the subordinate lien holders release you from personal liability."

Here is how this works. A property has a $100,000 2nd on it and under the HAFA the lien holder would be paid 3%, which is the maximum amount and is $3000, sign off on deal and release the borrower from personal liability. The 1st lien would be reimbursed 1/3 of that amount or a maximum of $1000. In this case the 1st would have lost an additional $2000, in order to get the 2nd to release its lien. Not bad for the 1st lien, not so good for the 2nd.

"Investor Reimbursement for Subordinate Lien Releases - The investor will be paid a maximum of $1000 for allowing up to $3000 in short sale proceeds to be distributed to subordinate lien holders, or for allowing payment up to $3000 to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis. For each 3 dollars an investor pays to secure a release of a subordinate lien, the investor will be entitled to one dollar of reimbursement. To receive an incentive, subordinate lien holders must release their liens and waive all the future claims against the borrower."

So the deck is stacked for 1st liens and not to good for the 2nd liens. Such a small amount of money, 3%, to release the lien, meaning you just loss 97% on this loan, with no recourse against the borrower to recoup this loss. Hmmm, I'm sure this will help some but I suspect that most of these 2nds are going to push for the foreclosure and seek to recoup losses later. Just a guess on my part.

Unemployment Rises in 30 states in January

2010-03-10T07:53:00.000-08:00

Unemployment numbers increased in 30 states in January, with 30 states reporting an increase, 9 had a rate decrease and 11 were unchanged. Michigan reported the highest unemployment with 14/3%, Nevada with 13%, Rhode Island at 12.7%, South Carolina at 12.6% and California at 12.5%. The rate in California has set a new high as reported by the bureau of Labor.

North Dakota, South Dakota and Nebraska reported the lowest unemployment figures. Over 15 States reported double digit unemployment with 2 others extremely close. Most of these states are heavily populated whereas the states with the lowest unemployment have low populations.

Five states have hit record highs, California, Rhode Island, South Carolina, Florida, Georgia and North Carolina. Nevada and Rhode Island tied their previous highs.

All these figure just show how far we must go to bring back the economy, something not soon to happen unfortunately.

FHFA Extends Refinance Program

2010-03-03T21:15:00.000-08:00

FHFA (Federal Housing Finance Agency) acting director Ed Demarco stated yesterday the extension of the Home Affordable Refinance Program, a refinancing program administered by Freddie Mac and Fannie Mae, to June 30, 2011. The HARP program expands access to refinancing for qualified individuals and families whose homes have lost value. The program was set to expire on June 30th of this year.

"FHFA has reviewed the current market situation and the state of the mortgage insurance availability and has determined that the market conditions that necessitated the actions taken last year have not materially changed." said De Marco. "Accordingly, to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan to value ratios to 125%, FHFA is authorizing the extension of HARP until June 30th 2011."

I don't know how many folks this will help, but most who could have refinanced have already done so and how many homes will qualify. Unfortunately the people this program is supposed to help are more than 25% below market. For these borrowers there property values have dropped so much they no longer can qualify. Nice to see the effort but I think it could be too little too late.

Foreclosures and Unemployment

2010-03-03T20:41:00.000-08:00

The BLS released the average states unemployment report today. One thing is for sure, there is a direct relationship between unemployment rates and foreclosures. Florida had the highest foreclosure rates, and Arizona and Nevada have higher foreclosure rates. This can be attributed to investors and overbuilding.

Arizona has an unemployment rate of 9.1% and a foreclosure rate of 18/3%, Nevada has an unemployment rate of 11.8% and a foreclosure rate of 24.7% and California has an unemployment rate of 11.4% and a foreclosure rate of 16.9%. Almost every state has a higher foreclosure percentage than the unemployment percentage, except for Oregon and Alaska.

In the vast majority of populated states there were significantly higher foreclosure percentages, with quite a few states having the number of foreclosures double the unemployment numbers.

This trend is more proof that as long as unemployment numbers are high this problem is going to be around for a long time. It is no longer a regional issue but a much more common problem through out the Country. Proof that unemployment levels definitely have a direct correlation to foreclosure rates.

FDIC to Test Principal Reduction

2010-02-26T08:56:00.000-08:00

The Federal Deposit Insurance Corporation is developing a program to test whether cutting the mortgage balances of distressed borrowers who owe significantly more than their homes are worth is an effective method for saving homeowners from Foreclosure.

Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they keep up their payments on the mortgage over a long period of time. Their thought is "an earned principal forgiveness", says Shelia Bair FDIC Chair, "this would only be for homes that are significantly underwater".

This program would only be for Banks that are taken over by the FDIC and amounts to less than 1% of all mortgages.

Lenders have been reluctant to cut the principal balance of borrowers fearing that it would encourage current borrowers to become delinquent even if they can afford the payments.

This is just a limited PR stunt to me, Almost no one will qualify, and the Banks believe it or not have more of an incentive to let borrowers default, since there are shared loss agreements with the Treasury for most of the Big Banks. Again it is all about Wall Street's profits and not main streets needs.

The belief that if this were to become mainstream, millions of homeowners would default immediately. The only thing these programs, the Treasury programs, and the Obama Administration HAMP programs are going to do is delay what is going to happen anyway.

24% of all Mortgages Nationwide are Underwater

2010-02-23T20:55:00.000-08:00

First American Core Logic released its 4th quarter negative equity report today and the results were worse than expected.

According to First American Core Logic, "More than 11.3 million homes or 24% of homes with a mortgage had negative equity at the end of 2009, up from 10.7 million and 23% at the end of the third quarter of 2009. An additional 2.3 million were approaching negative equity by the end of the year, meaning they had less than 5% equity. Together the negative equity and near negative equity mortgages accounted for 29% of all residential properties with a mortgage nationwide."

California was among the 5 highest states with negative equity, with 35% of all loans statewide upside down. Although California, Nevada, Florida, Michigan and Arizona made up 70% of all the negative equity, 2o additional states had growing negative equity problems. This means that the problem is widespread throughout the country.

"The dollar value of negative equity was $801 Billion up from $764 at the end of the quarter 3 2009. The average negative equity for an underwater borrower was $70,700 up from $69,700 at the end of the 3rd quarter 2009. The segment of borrowers that are 25% or more in negative equity account for over $660 Billion in negative equity."

Not all borrowers underwater will default, and for now their numbers, which aren't good, are still at a point where the banks can absorb the losses. But if the numbers keep on rising and more borrowers exceed the 25% negative equity mark, which is likely to happen, we definitely will be seeing more foreclosures and more banking troubles. Hold on, by the time the Government figures out what to do, if anything, we will be in the middle of yet another housing crisis.

Flood Coming of Foreclosures?

2010-02-18T14:09:00.000-08:00

I have written about this over and over again. The flood of foreclosures is coming, but when? Is this all just gloom and doom or is this real? It is real and today Standard and Poors reports why.

Standard and Poors, the credit reporting agency, tells investors what mortgage backed securities are really worth, and also reports that the increase in values was just an illusion. It predicts the nation is about to see a deluge of new foreclosures that will drive real estate values back down.

"Blame the shadow inventory" - the nearly 2 million homes that were foreclosed upon but for whatever reason have not been brought to market yet.

Many homeowners have fallen behind on their mortgages or stopped paying, but foreclosure has not yet arrived. Mortgage servicers, the folks who send you the bills and file for foreclosure when you can't pay them, are overwhelmed. Courts are backed up as well with all the filings. Mortgage modifications and foreclosure moratoriums have put off the day of reckoning for borrowers but not forever. And unemployment is sabotaging more and more homeowners every day.

Out of the more than $1,600,000,000,000 (Trillion) in existing mortgages that were packaged into mortgage backed securities or MBS, by Wall Street, some $425 Billion worth are extremely late on their payments and therefore likely to go into foreclosure. Only a small fraction of borrowers who fall seriously behind are able to catch up, with the help of loan modifications. Even if they catch up with loan modifications, the majority of borrowers fall behind again. The amount of bad mortgage debt has been spiking up every month, slowing only for a moment by government intervention, but still continuing to rise.

"Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market".

The current shadow inventory of homes is estimated to be at the same level as all homes available for same in America today. And that is not counting what is in the pipeline or what is expected to be coming down the road.

Banks are going to have to release these inventories soon whether by choice or force, and when that inevitably happens home prices will drop again.

Treasury Worried About Next Wave of Foreclosures.

2010-02-17T08:44:00.000-08:00

Treasury Officials stated yesterday they are still concerned about a coming wave of foreclosures, many from pay option arms and many from the prime jumbo basket, hit particularly hard by unemployment. The Treasury Home Affordable Modification Program or HAMP is also reporting that 1/3 of all loan modifications are delinquent.

Loan Servers seem to have exhausted the supply of plausible candidates for loan modifications, and will find many loans beyond saving.

HAMP is also gearing up for the April 5th launch of the Home Affordable Foreclosure Alternatives program, or HAFA, and is specific to 2 segments of the distressed markets. Deed in Lieu and Short Sales are the main focus here and the requirements are clearly spelled out for lenders and borrowers. The bulk of these programs are designed for Fannie Mac and Freddie Mac liquidation, but many other lenders are also included. For some borrowers this will be a good thing, for others they may not qualify.

Obviously the Treasury sees the tsunami of problems still ahead, but I doubt their actions will fix the housing market in the near future. I believe they have underestimated the numbers, they have not addressed the commercial defaults, and finally until unemployment shrinks, all these programs, are too little too late. Incedently the banks benefit from these programs far more than the consumers do, so what else is new from our wonderful government.

Indy Mac Video is Blatantly False!

2010-02-15T19:50:00.000-08:00

Last week I saw a video forwarded to me done by two guys from Fairfield. In their video for "Think Big, Work Small" these two guys reported on a sweetheart deal Bank One West got for the purchase of Indy Mac which went bust in 2008.

Basically the video suggested that Bank One West, and their Goldman Sachs investors, paid 70 cents on the dollar for 1st deeds. Then they sold them at market rates and charged back the FDIC with a loan loss provision and made the borrower sign a promissory note for $75000. It strongly suggested that Bank One West was milking the FDIC and taxpayers.

I thought about posting the video then, but couldn't verify any of the allegations the video made. This proved to be right. Although the video is well done it is inaccurate in its facts, and thereby the video is blatantly false as reported by the FDIC.

FDIC Director of Public Affairs Andrew Gray said Friday, "It is unfortunate but necessary to respond to blatantly false claims in a web video that is being circulated about the loss sharing agreement between the FDIC and One West Bank. Here are the facts: One West Bank has not been paid one penny by the FDIC in loss-share claims. The loss share agreement is limited to 7% of the total assets of Bank One West, and One West must take more than 2.5 Billion in losses before it can make a loss-claim on owned assets. In order to be paid through loss share, One West must adhere to the Home Affordable Modification Program.

The producers of this video perpetuate other falsehoods. The FDIC has not requested to borrow money from the Treasury Department. Indeed, we continue to be funded by the banking industry through assessments, not by taxpayers as indicated in the video.

The video has no credibility. Regardless of the personal or professional motivations behind its production, there is always a responsibility factually correct and transparent. The FDIC made available a fact sheet on the day that the sale of Indy Mac was announced that details the terms of the contract. Its too bad the creators of this video opted to premise it on falsehoods."

What video producers and the FDIC both missed or chose not to mention is under the HAMP any property supported by the loss share provision, the original borrower is released from any further financial obligations to their property and cannot be pursued for any loss. The borrower in the video would not have had a $75000 promissory note to sign since the HAMP program strictly prohibits it.

The Indy Mac terms are posted on the FDIC website and it is true. Too bad for the Fairfield Boys, I liked the idea but before you go public you better get the facts right!

Watchdog Group Warns of Commercial Real Estate Defaults

2010-02-15T17:53:00.000-08:00

A special congressional panel's recent report is sending shock waves throughout the commercial Real Estate Industry, not to mention giving bankers much worry and grief. It is also creating headlines in the media from coast to coast.

The message from the Congressional Oversight Panel, which is charged with overseeing the 700 Billion Dollar bailout program should come as no news to many, Housing watch and many other media outlets have been reporting the troubles for months. The prediction: "A significant wave of commercial real estate defaults could create a downward spiral that could touch the lives of nearly every American".

"Over the next few years, a wave of commercial real estate failures could threaten America's already weakened financial system", reports the panel. "The Congressional Oversight Panel is deeply concerned that commercial losses could jeopardize the stability of many banks, particularly the mid size and smaller banks, and as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy.

Dr. Elizabeth Warren, the Governments head of the bailout, states plainly "Well it's pretty bad". Nothing more needs to be said.

The New York Times recently reported that the losses in the commercial market could be well over $300 Billion in the next year alone. Trade organizations claim that the panel has overstated the problem, however, I find this statement to fall on deaf ears, especially mine.

By 2014 over 1.4 Trillion dollars of loans will expire and need to be refinanced. Half of those loans are already underwater, as stated by the panel.

This is one time I think the Government's forecast is closer to the truth than the trade, and this problem is looming like a "class 4 hurricane" waiting to come ashore.

Citi's Deed in Leiu Program

2010-02-11T20:24:00.000-08:00

Citibank announced today that it will allow homeowners to stay in their homes for up to 6 months in exchange for the deed to the property. The deed is given back to Citibank in "lieu of foreclosure" at the end of the 6 months and Citibank will offer a $1000 relocation allowance as well. In certain circumstances Citibank may even pay some additional monthly property expenses if Citibank determines the borrower can no long afford them. As part of the agreement, the borrowers must maintain the property in current condition and agree to bi-monthly meetings in which trained relocation professionals will help the borrower on the next step of their lives.

This is a pilot program and is part of the deed in lieu of foreclosure and short sale program the Treasury is doing in the HAFA (Home Affordable Foreclosure Alternative)Program, part of the larger HAMP (Home Affordable Modification Program).

One note here is that Citibank doesn't mention this tidbit, but HAFA requires a full release of debt and waiver of all claims against the borrower. In short the borrower is permanently off the hook. First program of its kind and it will be interesting to see what happens down the road. What will they do it 1/3 or more off all their mortgages are given back? Sounds very expensive to me.

Foreclosures Decline in January but Surge Expected

2010-02-11T09:19:00.000-08:00

Realtytrac announced today that foreclosure filing dropped in January from December's numbers but is still 15% higher than a year ago.

Over the next months banks are expected to aggressively foreclosure on delinquent loans, where loan modifications, short sales and deed in lieu options no longer work. Beginning in February many of the trial modifications will expire and as of now over 50% of these modifications didn't work out.

Although the foreclosures have not hit the market for resale, short sales have increased. This is due to no inventories in so many markets, a direct result of both the banks and the government trying to stabilize the housing market.

Nothing that the President, Congress or the Banking Sector is doing has stopped the rise of theses distressed properties. All aspects of the housing section is still getting worse not better.
More of the same talk and no action. Where are the lender regulation changes, where are the jobs, where is the common sense? Couldn't they at least start with one of these requests?

Freddie Mac to Buy Back all Bad Loans

2010-02-10T18:12:00.000-08:00

Freddie Mac issued a release today that stated Freddie Mac was going to buy back all the loans it insures that were late on their payments or in the foreclosure process, since the cost to buy the inventory back is less than the cost to carry the bad loans. In 2007 Freddie Mac stated it would pursue this course of action should this happen so it comes as no surprise.

It does however show that the mortgage giant is also buying out the inventories from the banks since more foreclosures are on the way to banks. This could ease the impact for a little while but eventually these foreclosures are going to have to be sold. The real question is can Freddie afford the next round of foreclosures, short sales and deed in lieu defaults?

So, as of March 2010 Freddie will buy back all loans that are 120 days delinquent or more for all fixed and adjustable rate loans. Total cost for the buy back have not been disclosed as of yet.

This does not affect the Home Steps buyers program, which helps first time buyers with the purchase of a Freddie Mac owned property.

Prime Jumbo Loan Defaults Hit New High.

2010-02-08T17:32:00.000-08:00

Fitch Rates of Business Wire reported that all prime jumbo loans performance continued to weaken in January for the 32ND consecutive month to all time delinquencies level of 10%. The loans originally began to default in 2007 but by 2009 the numbers had more than tripled. Florida and California were the hardest hit states and the top five default states account for more than 2/3's of all jumbo mortgages.

California, New York, Florida, Virginia and New Jersey were the top 5 states and California alone accounts for 44% of the market, and 11.3% of it's loans going delinquent. Like the conventional loans this is a real concern for banks as wealthier clients start to look at their loans as business decisions, their rate of defaults will definitely rise, the question is by how much? Jumbo loans are roughly between $500,000 to $2,000,000 so the losses will be much higher per default and will add more pressure on the banks. Luxury homes making up the majority of all jumbo loans have been declining steadily in value over the last 2 1/2 years. A 30% decline in values on a $2,000,000 property is a $600,000 loss on the loan. Big numbers and big headaches are definitely ahead for banks. Does anyone have an aspirin?

Contrary to belief that the loans defaulting were sub prime borrowers this is in stark contrast to this is the triple A rated top shelf borrowers going delinquent. It's just more news that markets still are in serious trouble with virtually all mortgage delinquencies across the board rising, this is not just a sub prime mess anymore. This is a house of cards and it is going come tumbling down really soon.

Rising FHA defaults, more Foreclosures Coming

2010-02-07T11:53:00.000-08:00

The amount of the FHA insured loans that are behind in their payments jumped by 1/3 last year, foreshadowing a crush of foreclosures to trouble an agency responsible for a large segment of home loans today, as reported in the Washington Post.

The rise in delinquencies is growing at a rapid pace now, and the foreclosures are stemming from loans made in 2007 and 2008. This was reported in October by Commissioner David Stevens in his October Report, and the rest of the report wasn't good news either.

Current delinquency rates are at 9.1% up from 6.4% a year ago. This rate has been eating away at the cash in the agency and it seems to be speeding up in the last 2 quarters. Most of the problem loans date back to 2007 and 2008, however more newer loans are in jeopardy as well, mainly due to the continued decline in housing values in some areas and the high unemployment.

It is feared that if these loses continue, the government will have to use Taxpayers Dollars to bail out the FHA, something that has never happened before. In the last quarter alone the agency reported a 26% increase in delinquent loans.

This is further exasperated by the fact that many FHA borrowers are the middle class working people most affected by the high unemployment, and certainly the most vunerable to fall behind in their payments.

Just another reason that the first bailout should never had occurred and now the Taxpayer is forced to pay out good money after bad. The government is now faced with bailing out their own agencies, a sorry first in America, and should this occur before November, look out!

Banks in Trouble Jumps to 599

2010-02-05T08:22:00.000-08:00

The Banks in FDIC trouble jumped to 599, including the removal of 11 failed banks including the 5 banks last week and the addition of 26 new banks to the list.

The new tab is $322.5 Billion up from the $305.3 billion last week. That's a jump of 17 billion in loses in two weeks. Although the FDIC won't officially release these figures, they were gathered from the public records and compiled unofficially. What bothers me is that this is just an estimate and the FDIC is probably shielding so much more. And how much have we bailed out these failed banks.

Why is it these banks fail and others are "too big to fail". Capitalism is supposed to correct the markets on it's own, isn't it? So as we see the banks who are "too big to fail", coming back into financial trouble later this year, Let them fail!

Congress can't legislate the corrections needed in the market and the banks can't be trusted. The collapse of the markets is a necessary for capitalism to correct. Not to mention the top executives of these institutions would be out of a job. If the banks fail, other banks will change the way they do business in order to stay in business. This is what needs to happen!

Borrowers Pay Credit Cards not Mortgages

2010-02-04T20:53:00.000-08:00

The credit reporting agency Trans Union said today, borrowers, especially in California, continue to focus on their credit card payments and ignore their mortgages. This is the second study conducted by the company to show the same trend.

This is the first time that more consumers are on time with their credit cards and delinquent on their mortgage. The payment priorities are more pronounced int California and Florida, the biggest housing bubble states.

It could be that with a tight job market, homeowners are using their credit cards to stay afloat while looking for employment opportunities. Trans union Reported that 10.2% of delinquent loans had current credit cards. Up 4% from a year ago.

This adds pressure to the banks since the loss from the mortgage loans are much higher dollar values than the credit card exposure. The next 6 months will be the telling sign for banks. If unemployment is still hoovering at 10% there is greater exposure to loan losses and credit card defaults could rise as well.

This trend to pay your credit cards and not your mortgage sends a real powerful message to Wall Street. Homeowners prioritize their debts to survive these turbulent times, and now with home values plummeting homeowners figure their investment has now gone bad. No sense in spending good money after bad. In the meantime credit cards enable the homeowner to use credit for daily needs.

We'll see if this trend gets worse, but maybe Wall Street will start to feel whats happening on Main Street.

Mortgage Delinquencies increase to 10%

2010-02-03T23:36:00.000-08:00

Home loan Delinquencies rates in the US reached a record high 10% in December, up from 9.97% in November, which was the previous high, according to Lender Processing Service or LPS.

Accounting for the foreclosures in the pipeline now, the delinquency rate is expected to rise to 13.3% in the next few month. Nationwide 7.2 million loans are now behind in their payments. This figure is sure to rise with unemployment staying above 10%.

Despite all the hype about stabilization in the housing sector, the government literally controlling the mortgage market and the high amount of loans in trouble, I don't see how this market can stabilize. Hold on this ride is going to get ugly.

Government Programs May Be Creating New Bubble

2010-02-01T22:47:00.000-08:00

In the Quarterly Report to Congress from the Office of the Inspector General for the Troubled Asset Relief Program, it stated "Government Programs Risk re-inflating Bubble."

"To the extent that the crisis was fueled by a bubble in the housing market, the Federal Governments concerted efforts to support home prices risks re-inflating that bubble in light of the Government's effective take over of the housing market through purchases and guarantees, either direct or implicit, of nearly all the residential mortgage market."

Here is the break down of support for the residential mortgage market.

*Support of Primary Mortgage Market - Insure Mortgages of Homeowners
FHA - insured at $757 Billion
VA - insured at $269 Billion
USDA - insured at $56 Billion

*Support of Secondary Mortgage Market - Guarantee and Purchases Mortgages
Fannie Mae $2.1 Trillion for Guarantees
Freddie Mac $1.9 Trillion for Guarantees
Ginnie Mae $864 Billion for Guarantees
Federal Home Loan Banks $1 Trillion
Fannie Mae $752 Billion Purchased
Freddie Mac $762 Billion Purchased

*Emergency Support During Crisis - Buying MBS, Tax Subsidies, and Support GSEs
Federal Reserve $1.1 Trillion Purchased
Treasury $331 Billion Purchased and Senior Preferred Stock
Treasury TARP $40 Billion to support PPIP
Treasury IRS 2009 First Time Home buyers Tax Credit Tax Subsidies

Grand total $9,931,000,000 - Almost 10 Trillion Dollars!

The Government believes these are the mechanisms to support housing prices. Keeping Interest Rates Low, offer tax credits, buying bad loans are all aimed at creating a demand for housing. One of the fundamental problems here is that the Institutions that became "To Big To Fail" are ironically now even bigger.

The amount of money the Government has put into the mortgage market virtually guarantees control over the housing sector. The big question is two fold; first what is Government going to do with all the purchases, Insuring and Stock it has or will purchase; and second what's going to happen when the Commercial Real Estate Market needs Government Life Support too? A Government Run Mortgage Market, and still Wall Street manages to get subsidies for their "even larger" "too big to fail institution", changes little in the way the business is being done from the practices that brought the collapse of the markets and continues business as normal.

As the markets dry up due to these purchasing of loans, the low interest rates and add the tax credits, then what? Another bubble, if banks have more inventories, interest rates rise, no more tax incentives and home sales will drop fast.

Somehow knowing that 10 Trillion Dollars of the Government's Money, our Tax Dollars, literally owns the home mortgage market doesn't make me feel too confident about our chances to avoid a second bubble. I hope we don't hear a "pop" in the future.

Is A Second Stimulus Needed?

2010-01-29T16:20:00.000-08:00

Moody's Economy.com chief economist Mark Zandi and former Congressional Budget Office Director Rupolph Penner both stated at the Urban Institute Conference recently, that another stimulus was required to stabilize the economy and ward off a double dip recession.

Zandi reports "Get the GDP growing first and forget about the debt. With unemployment at 10% and companies still shedding jobs growing the GDP should be the first priority". Zandi believes that the government needs an additional $200 Billion dollars, mainly for business lending, extensions of government programs such as unemployment, state and local governments and fix the foreclosure housing market.

Penner was a bit more Conservative in his estimates, claiming another $98 Billion was necessary and he believes the money should go to Medicaid, the states and creating jobs.

Either way these two both believe that without another stimulus we are heading for a double dip. The question is "Will Washington be able to sell this to the voters, November is only 9 months away.

4 More and Another 1 Billion in Loses

2010-01-29T16:10:00.000-08:00

There was another bad sign today in the shaky Financial World. By day's end 4 more banks failed today with over 1 Billion Dollars in loses to the FDIC. That brings the running total at 13 so far this year, and another 580+ known to be in trouble.

Marshall Bank of Minnesota, Florida Community Bank of Florida, First National Bank of Georgia and Community Bank and Trust of Georgia. Total Cost to the taxpayer to pay the depositors is over 1 Billion Dollars. Stay tuned, more to come I'm sure...

Both Freddie and Fannie Post higher delinquencies

2010-01-28T18:15:00.000-08:00

Both Fannie Mae and Freddie Mac have posted considerably higher defaults for loans. Fannie Mae, which lags in it's reporting one month behind Freddie, reported a sharp jump in delinquencies in November up to 5.29%, up from 4.98% in October and up from 2.13% in November of 2008. Freddie Mac reported delinquencies up to 3.87% in December 2009 from 3.72% in November and up from 1.72% in December of 2008. These figures are from the "Calculated Risk" newsletter Blog, and are concrete evidence of the vast problems ahead for these mortgage giants.

What this shows is that defaults have more than doubled from 2008 and the forecasts for 2010 are these defaults are going to go higher still, possibly doubling from these last reported levels. Despite the media reports of stabilization of the housing sector, this is a serious contradiction to the belief that housing market has stabilized.

Loan loss estimates for the pseudo Federal Companies are staggering, into the Trillions of dollars and although the President has stated he wants more loan modifications, the pace of relief for troubled homeowners is far out paced by the rising delinquencies. More of "We are here from the Government and we are here to help", which is just political rhetoric.

Fannie and Freddie need to retool, be revamped or better yet be eliminated before they further strain this troubled economy. No matter how you spin this, the worst, I'm afraid, is yet to come.

New home sales down, Fed to stop buying securities

2010-01-28T07:37:00.000-08:00

Two recent reports on the housing sector is adding more fuel to the market deterioration. First new home sales figures dropped for the month of December, including the decline of mortgage applications and building permits, which are the traditional indicators of the market. Second is the Fed announcement that they will stop buying mortgage back securities this spring. What this means is that the Fed is buying these notes to keep mortgage rates down. Once this ceases the mortgage rates could jump quite a bit. Analysts project the rise of rates could jump as much as 1% or more. The Fed states this is due to stabilizing markets. Is it so? Or is this also due to the excessive spending has reached non sustainable levels of spending.

If consumers read the "tea leaves", home sales are likely to slow due to higher interest rates, continued high unemployment, more troubling signs from the economy and who knows what else. So what's a potential home buyer to do? BUY NOW, that's right, buy now. Economically if you can afford to, now might be the best opportunity. Even if the market values decline in the short term future, the savings will be more than offset by higher interest rates and possible inflation. No matter what is going to happen in the markets, at least you have a tangible asset land, brick and mortar, a home, something physical not a paper investment. Can Wall Street say that?

Just Walk Away

2010-01-26T18:00:00.000-08:00

Yesterday one of New York's big Real Estate Developers who developed the Stuyvesant Town Complex stopped paying it's 3 Billion Dollar Mortgage for the complex. Big Developers do this all the time, and its more common than you may think. So I have a question. Why shouldn't every homeowner who is upside down on their properties, just stopped paying their mortgages? It seems that this is what University of Chicago Economist Richard Thaler recently said in the New York Times.

Mr. Thaler stated "It's not just alright to walk away from one's oversized mortgage, it may actually be a moral imperative". He went on to say "After all, lenders had no second thoughts about lending more than many borrowers could afford or than the homes might actually be worth. It's just not fair to expect borrowers to follow rules that lenders don't."

He goes on to say "The real risk to the banks and investors is that the people in those homes might just decide to walk away. And that's what we must do. Doesn't have to be everybody, of course; but anyone who finds themselves seriously underwater with no hope of ever recouping their investment-just walk away Renee. Morality has nothing to do with it. You are a clog in the wheel of a machine that is killing this country and if you remain a cog you enable it. Remove your cog and the machine will not keep running. Remove millions of cogs and the machine gets replaced."

An earlier NY Times article written by Roger Lowenstein said much of the same thing and recently the Daily Kos Blog stated "Remember burning draft cards? Burn Your Mortgage".
Heck there is even a web site called "You Walk Away.com". So what going on here, why can't I just modify my loan? Here is what's up with that...Let's talk reality here.

Here is what typical modifications do. First they reduce the interest rate and extend the life of the loan typically to 40 years. Then, if asked, they look at a principal reduction or a deferment. This caps out at 25%, but typically the most banks give here is 20% and less than 10% of all modifications have this. Lastly, this is probationary or trial for 3-6 months, in which case the modification will be readdressed. With more time afloat the banks rationale is hopeful to prevent the default. Currently over 56% of these trial modifications are going bust again. One of the reasons that you can't modify so many of these loans is that they were sold as investments to many different parties. If the servicing bank changes the note without all the investor approvals, they would be sued immediately. You are in fact trying to ask multiple investors, in multiple countries to all agree to lose money. Fat chance of that happening.

So for a small few homeowners, modifications can be a real option, but for the remaining 90% of homeowners in way over their heads, what's left. Three Options. 1 Deed in Lieu of Foreclosure, 2 short sale the property (sell property for less than the mortgage) or let it be foreclosed.

The banks themselves aren't helping the situation at all. Big bonuses, government bailouts, reckless business practices, are all making these trapped homeowners really mad. They get the diamond mine and we get the coal shaft.

So here we are. If your mortgage payments have or are going to go up, and your local property values are declining, what's one to do? I'll bet we'll see a lot of "Walk Aways" real soon.

Home Sales Drop in December.

2010-01-26T08:29:00.000-08:00

Yesterday it was reported that home sales dropped in December. Nothing earth shaking here, or is it? Let's look at the real trend and numbers happening here.

December home sales dropped by over 17% from November, in what is the largest monthly drop in home sales in over 40 years. The press and trade folks are claiming that this is a direct result of home buyers believing that this drop was due to buyers believing the one time tax credit was going to expire at the end of November. (It is now extended to April 30th, 2010)

I think that there may be some truth to this but let's look at all the issues. Winter is traditionally the slowest time for real estate sales, so this should come as no surprise. The December unemployment figures were higher than expected, and the consumer confidence issue continues to deteriorate. Add this to banks not lending, Wall Street quick rise up and lackluster predictions across the board for 2010's general economy and this drop should come as no supply.

The FHA is now tightening it's lending rules as we move forward into the new year and folks I gotta tell you I have this gnawing feeling we are headed for real trouble in real estate. In some markets FHA loans amount to over 60% of all sales. Typically FHA requires only a 3.5% down payment whereas convention loans require 20% down payments.

With the jobless recovery becoming some sort of a real scenario, the rapidly declining consumer confidence, the housing market sales declines and the end of any stimulus results coming soon, makes me really nervous. Let's hope I am wrong but I think we could get to a point here real soon where we won't have buyers for the all the homes coming into this market. That spells real trouble for all those except the few who have jobs, down payment money and desire to own!

Unofficial Count 584

2010-01-24T16:48:00.000-08:00

That's the unofficial count of Problem Banks in Financial Trouble in America right now. There are 584 insitutions that are under some sort of Federal Notice, from "Cease and Desist" to "Formal Agreements". Their combined cost estimate to cover the banks depositors is $305.3 Billion Dollars.

On Friday Jan. 22, 2010, 5 more Banks were taken over by the Feds in one day, bringing the total to 9 so far this year alone. I think this is staggering news about the solvency of the banking community still. True, most of these banks are small to midranged but California had 34 Banks alone on the list and these banks aren't part of the stimulus package or TARP, so this money is in addition to stimulus money.

This is one reason that the credit markets have made all loans more difficult to obtain. Most of these small to midsized banks are community oriented, meaning they made loans to buisness and commercial real estate as well as residential real estate. This is a direct compenent of the looming Commerical Real Estate market crash that have heard about, and these problems are beginning to show it. Some problem banks made commercial loans that are likely to have as much as 1/3 or more of loans going bad. If this trend continues there is going to be a crash in the commercial real estate market very soon.

So with 584 Banks in trouble and their loans likely to have a high amount of defaults, how many more banks, not on the list, are tetering on the brink of trouble now? I'll bet that number is frightning! Those unkown variables could be the difference between a second Market Crash or wheter we squeak on by, if we're very lucky! One thing is for sure, I'll bet lending will still be difficult for both the commercial and residential markets, and credit could freeze up again. Either way it looks like a very bumpy road ahead for banking, loans, commercial and residential real estate.

Housing Prices Continue to Fall

2010-01-23T09:36:00.000-08:00

I have heard from many financial pundits that housing values are on the upswing. Modest forecasts for the values to rise in 2010 are abound. I just don't buy this and here is why.

One of the reports the Fed's use is the First American Core Logic Housing Index and monthly index tracking housing values on a monthly basis. (They also use the Case Shiller Reports, which are quarterly, hence First American is more timely).

The latest report from First American Core Logic Index shows a .2% decline in the latest national reports from October 2009 to November 2009.

Nationally the Home Price Index or HPI has dropped by 30% since it's peak in April 2006. This includes all homes sales including foreclosures and short sales. Excluding these distressed properties, the HPI has fallen 21.8% from the same peak.

This trend is expected to continue for some months to come, and although the banks have held back inventories referred to as "shadow inventories", the value losses have continued. This tells me that the housing decline is no longer the distressed homes driving the market downward, it is now more due to current economic conditions such as unemployment, and low consumer confidence.

The banking sector would be better advised to release these shadow inventories since most economists project the number of foreclosures is rising past it's highest levels on record, and a jobless recovery is where we are at due to high unemployment which is also expected to go even higher.

So to anyone speculating that home values are going to rise this year should pay attention to these facts. I live in the world of solid facts, not the belief or hope things are on the mend now.

Still having said all that, this is the best real estate market we will probably see in our lifetimes if we are willing to understand the facts. New home buyer or investor this is the time, flippers need not apply!

Bank Bonus' Up Again Time to Change the Rules.

2010-01-22T09:31:00.000-08:00

Yesterday I read that Goldman Sachs was paying out $16.9 Billion Dollars in Bonus Pay. That is an average of $498,000 per employee. Or better yet that same amount would pay for unemployment benefits for 900,000 people for 1 year. The disconnect between Wall Street and Main Street is astonishing.

Remember Goldman Sachs former CEO Hank Paulson was the last treasury secretary, who set up Goldman Sachs as a primary recipient of the stimulus package, which by the way should be exposed and investigated further in the media, with the help of the the former NY Fed governor, Timmothy Guithner, the current Treasury Secretary. So it may not be of any surprise that in a recent PBS interview with Guithner, he was less than enthusiastic about the President's planned reform of banks, luke warm would be an overstatement.

I can't help but feel that since the election loss this week there is and will continue to be a mad scramble by Washington to save their proverbial butts. One problem with bank reform is that too many Wall Street Friendly folks have the positions of power. Guithner, Summers, etc.... are loyal to Wall Street not Main Street, so should they be a part of this.

Guithner is no friend of the American people. Remember he is being looked at while he was the NY Fed Governor when AIG got bailout funds and then didn't want the public to know about it. Also bear in mind that Goldman Sachs got some 30+ Billion dollars from AIG in payables at 100 cents on the dollar with no concessions, such as other creditor have given.

So if Obama wants bank reform, maybe he should look in his own house, determine who is Wall Street motivated, and replace them. Fat Chance of this, but it is worth venting about.

Now is the time to revamp the banks, put back regulations that were removed previously, and make the laws work for the people not the Wall Street Profits. Remember what happened in Massachusetts last Tuesday, it could happen all over the country in November.

Can You Hear Me Now!

2010-01-20T08:05:00.000-08:00

Yesterday's victory in Massachusetts by Scott Brown was more about the voters anger than anything else. The Seat held by Senator Ted Kennedy for almost 50 years shows that voters are no longer interested in the insiders game. Martha Coakley sided with the Democrats, claimed she supported the policies, and took the election for granted. The result, She Lost. Not only did she lose but only 1 month ago she had over a 20 point lead in the polls. So what changed, to elect a republican who has values similar to Dick Cheney. (Scary isn't it)

Scott Brown campaigned on number 41, the deal breaker in the Senate to the President's Policies. Voters are so disgusted with the Washington Policies that are being forced by the President, Nancy Pelosi and Harry Reid. Don't get me wrong the Republican are the ones who got us into this mess but the Democrats have blown an opportunity due to their own agendas.

The next months leading up to the November Mid Term Elections are going to be a challenge for all Washington cronies, either change the way you pass legislation or face the wrath of the voters come November.

Last year the independent voters of America voted for change we can believe in. Since then Washington, both democratic and republican, have done little if anything to initiate this change. Yesterdays vote was more about the anger in America specifically the business practices in Washington and if voters can vote a guy like Brown into office because they are angry, imagine what could happen in November. Pelosi, Reid, Bohnner, Mc Connell and the rest of your idiots "CAN YOU HEAR ME NOW!"

5 Possible Problems Delaying Recovery

2010-01-19T09:58:00.000-08:00

As all of the media touts the recovery is happening, all be it slowly, here are 5 major concerns that will cause more problems down the road.

1 Unemployment continues to decline. As the reports come out about declines in unemployment numbers we must remember that those figures are grossly under reported. They do not include those who are either unemployed beyond benefits period and those who are under employed. The National Federation of Independent Business' offers little support to the reports of declining unemployment. Their recent polls showed only 10% were hiring, whereas 22% reported the need for more layoffs. Either way the employment situation will continue to deteriorate.

2 Residential Real Estate Values are Increasing. One of the main reasons that there is an increase in some markets in real estate values is the deliberate holding back of inventories by the large financial institutions. These are refered to as shadow inventories and they are being held to try to stabilize real estate markets. This is creating an artificial belief that there is a recovery going on. Also the amount of foreclosures is expected to rise significantly this year adding to the pressure to release inventories. Once these inventories are released then values will most likely drop again, up to 10% declines projected in distressed markets.

3 Commercial Real Estate Foreclosures are on the rise - As the loses mount for the commercial real estate markets the loses will carry over to the banks, some of which can go out of business, causing more problems in the financial sector. Last year the Fed of Atlanta projected that 43% of all commercial loans were either going to go into foreclosure or need to be modified.

4 US sales tax revenues continue to decline - Revenues to the US via sales tax have declined and with a struggling economy, revenue forecasts for 2010 don't look much better. All of this leads to less money coming into the Treasury at a time when spending is at it's highest levels ever.

5 China's Real Estate Bubble Pops - Currently China's Real Estate Market is rising at an alarming rate, up to 58% increase in values in certain markets over the last 12 months. Now the Chinese Government is now tightening the loose controls which caused these escalations there is speculation that these gains could go south and fast. If that happens China would no longer have the resources to purchase foreign debt, mainly US debt.

All these factors are real and offer a clearer picture of the year ahead, unfortunately not good news yet.

More Foreclosures Ahead

2010-01-18T09:20:00.001-08:00

Last week the Wall Street Journal reported over 2.8 million households had receive at least 1 foreclosure notice in 2009. That is the highest amount on record, and the projections are that 2010 will easily surpasse this figure, mainly due to high unemployment and rate resets. In addition President Obama's Loan modification program has resulted in only 700,000 loan modification requests of which nearly half are already back in default.

So what does this all mean. The housing sector is in no way near any recovery, despite what the media is reporting. This concept that there is a jobless recovery in the economy is no more than smoke and mirrors. The effects of the stimulus package have boosted only the largest wall street firms and those effects will be wearing off shortly. Then What?

The truth is not so rosey. The foreclosures being held back by banks in their "shadow inventories", the amount of new foreclosures occuring, the lack of any real loan modifications for the majority of distressed homeowners. high unemployment will all lead to the continuing decline in housing values and more bank owned properties will need to be marketed.

For some this will be what is needed to be able to afford buying a home, to others, this will mean they will walk away from their homes. Either way recovery in the housing market is at least 1-2 years away.

In my view this is just another example of the priorities of Wall Street and The Government and leaving main street far behind. Remember this come November!

Are They Kidding?

2010-01-14T15:33:00.000-08:00

I had to think how ironic it is that the Banks testified before congress yesterday telling all they were sorry and didn't see the crisis coming. In addition they justify the enormous paychecks claiming that they were earned. "If we don't offer these high bonus' we will lose the talent needed to bring us out of this economic mess."

I don't know about most people but I am outraged by these comments. These were the crooks that got the country into this mess, the government gave them a blank check, and now we need to continue to endure this BS and believe this is what is best for the country. And I thought Bernie Madoff was the biggest crook in american finance.

Let me ask you this, Do think you can ever trust a bank to do what is the right thing for the common man. Do you find banks quickly reverse charges when customers complain about them? Do banks reduce interest on loans and credit cards because it is the right thing to do? Well, I think we all know the answers to these questions and now we should believe them because they go before congress and claim "We're Sorry". What arrogance!

The reality is that banks are driven to make money for their shareholders and the top executives are interested more in their own greed than anyone, including shareholders.

Financial Guru Suzie Ortman stated a few days ago that the best thing consumers could do is to move all their assets out of the large banks, Chase, BofA, Wells Fargo and Citibank and bank with local banks or credit unions. If that were to happen these greedy little pigs wouldn't have any excuses or better yet, no jobs. Credit Unions especially are good in that there are federal laws limiting the amount of interest banks can charge. (Capped at 18% Max.) Credit unions are beholden to their members, not shareholders and care about their members more than banks care about theirs. To this I say Brava, Suzie you got that one right! I'll be right back, I have to go and close some accounts now...