Watching The Wheels Spin Off The Wagon
This is a guest post, followed by some articles I’ve added for commentary.
I am a long time blurker who has enjoyed and learned much from HBB. Many thanks to Mr. Ben Jones and his loyal posters. I went so far as to start The North Idaho Real Estate Blog in the Coeur d’Alene Press ( now defunct) in 2006 using the nom de plume ‘Ben Daere’ in his honor..sort of. A number of posters said that they had been “converted” to seeing real estate reality. So, HBB saved the fiscal bacon of a number of folks in my area for which I feel rewarded in “good vibes.”
During this period, my favorites out of the many excellent posters have been the late, great Oly and the inestimable Allena Hansen, even though I’m probably diametrically opposite in political philosophy, as will be shown soon.
Such is the nature of HBB.
We live in interesting times. The same logical analysis of the housing bubble and siren warning given by the HBB gang should be applied across the board to all aspects of our so-called government. I tend to believe less government is more as I don’t need a whole lot of “governing.” Having worked as an administrator for the Community Services Administration in the ‘70’s taught me that 99+% of people are victims of their own circumstances and that many of those whose plans fall through don’t have any problem demanding that their fellow citizens (taxpayers) pick up their slack.
Concurrent with that experience I began my political experience with haranguing my elected officials to pass a balanced budget amendment; institute term-limits; phase out Social Insecurity and medicare and to downsize our costly foreign commitments. In general, shift power not only from Federal to State, but to the COUNTY level. As Tip O’Neill’s father told him, ‘All politics is local.’ I have trouble enough keeping track of the featherbedding hucksters in my burg, so I don’t have any way of knowing what the politutes in the district of corruption at the south side of Baltimorgue are doing.
Obviously, my efforts were in vain. Now, I just have to lay back and watch the wheels spin off the wagon. I’m like a guy in a kayak going over a waterfall…at first the view’s interesting and it’s pretty exciting but the conclusion is very questionable.
We are rapidly approaching the ‘conclusion’ of our national fiscal nightmare. The $12+Trillion national debt, the $trillion deficits as far as the eye can see, the ‘boomers’ hitting the emaciated SS and medicare programs, the impending collapse of the Pension Benefit Guarantee Corporation and the imploding industrial base that even the counterFIAT money presses can’t keep up with should raise the hair on every taxpayer’s neck. Not to mention that not one cent has been saved for the massive military and civil service pensions.
So, what to do? As the Boy Scouts say, “Be Prepared.”
Rather than hunkering down with an AR-15 and jars of stale flour, I’d rather be proactive and look to how we can make this country a better place. I see that I’ve exceeded 500 words of windy diatribe so I’ll leave it to the cavernous vat of wisdom collectively known as the Housing Bubble Blog to offer up solutions, should it be willing.
Humbly submitted,
Zeus M.
From Bloomberg. “The U.S. investment in Fannie Mae and Freddie Mac may be too deep to effectively transition the mortgage-finance companies out of government control and back into the hands of private investors, their former regulator said. ‘I would love to figure out how to get there, but I think we may be too far along the line of government involvement,’ James B. Lockhart III, who ran the Federal Housing Finance Agency and its predecessor agency from 2006 until August 2009, said in a Bloomberg Television interview.”
“Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, were seized by FHFA 17 months ago because of their risk of failing and have since survived on $110.6 billion in taxpayer- funded aid. ‘Most of that money will never be seen again,’ said Lockhart. ‘They were just allowed to leverage themselves so dramatically.’”
The DC Mortgage Examiner. “Local GSEs, Fannie Mae in northwest Washington, D.C. and Freddie Mac in Tyson’s Corner, Virginia will have diminished roles in buying mortgages until they put their books in order. The week before they were taken over by our Federal Government, their stocks were trading around $21.00. Today both trade around $1.00 and often less. Unless another infusion is granted by Congress, it is likely their share prices will near zero.”
“This poses a serious problem for the Obama Administration as it tries to steer the economy into the calmer waters of fiscal solvency. Without the two leviathans (FNMA and FHLMC) buying mortgages from banks originating loans, lending institutions will have to keep them on their books. A situation such as this bodes poorly for those with less than perfect credit hoping to get a loan that is not directly underwritten by the government, such as FHA loans.”
“Representatives Barney Frank (D-Mass.) and Maxine Waters (D- CA)…have proposed legislation to reduce the inventory of houses by having local governments purchase them to prevent unfair competition with other homes not in the dire straights of mortgage default.”
“There is another choice yet to be offered. How about banning ownership of private property? Oh, that’s right.! Someone already tried that one.”
The Vancouver Sun. “U.S. housing prices are headed for a double-dip decline that will hurt related equities which have already priced in a recovery in the sector, warns Benjamin Tal, senior economist of CIBC World Markets. The reason, he said, is that any current stabilization in U.S. housing is more a function of a badly damaged market and the distorting affect of temporary tax incentives than evidence of a sustainable rebound.”
“‘We anticipate further weakness ahead as supply continues to outpace demand, mortgage rates head higher and the government’s generous homebuyers’ tax credit finally expires,’ Tal said.”
“The ’shadow inventory’ of housing is what worries Tal most, and has him calling for another decline in prices of five to 10 per cent over the next two years. While conventional inventories are trending lower, there are close to two million mortgages that are more than 90 days delinquent, nearly half of which will end up in foreclosure. Add another 2.3 million properties that are already in foreclosure to existing properties on the market, and you have inventory totalling more than eight million units, a record high 16 months of supply.”
“Even more staggering is the fact that 10 million households now find themselves in a ‘negative home equity’ position of worse than minus 20 per cent. Considering the ease with which U.S. homeowners can walk away from their mortgages, ’strategic defaults’ — or failing to pay when one could — are a very real option, Tal said. ‘In six months from now nobody will be asking what a strategic default is. Everyone will know.’”
“With 24 million Americans now out of work or underemployed, ‘it’s crazy to call for a recovery in the housing market in this kind of environment,’ Tal said.”
The Orange County Register. “Are all these loan modifications we keep hearing about actually helping homeowners avoid foreclosure, and thus helping the housing market and economy? Tom Mitchell, a senior analyst who covers financial stocks at Miller Tabak & Co., agreed that banks’ modified loans may be skewing the picture.”
“‘We now have to consider the [modified loans] as a kind of shadow group of nonperforming assets,’ Mitchell said. ‘It’s reasonable to say that for most banks, if the loans had not been [restructured], they would have been nonperformers.’”
The Pacific Coast Business Times. “Economist Mark Schniepp thinks the lowest point in the recession has passed and that 2010 will be a transition year for Ventura County. ‘Last year we were predicting the end of the world,’ Schniepp said. ‘2009 was horrendous. 2010 is going to be a transition year.’”
“Housing inventory levels are now back to where they were at the peak of late 2005, but Schniepp said the increase is likely due to distressed properties and government incentives for homebuyers. ‘It’s very hard to predict this market because it’s been tampered with … it’s not a free market anymore,’ Schniepp said.”
The Fairfax Times in Virginia. “Nobody is going to paint the current picture as rosy. There are still too many homes for sale and not enough buyers. The economy is still struggling, and many Fairfax residents remain worried about their jobs. That said, though, there are some encouraging signs.”
“It’s also worth noting that the hottest segment of our housing market — homes priced under $300,000 — has largely been fueled by the federal first-time homebuyer’s tax credit of $8,000, an artificial stimulus that’s slated to disappear in April. Rather than allowing the credit to vaporize altogether, perhaps it should be extended to all buyers through 2010. More people would be inclined to buy in the midpriced market ($300,000 to $500,000), freeing up inventory in the ultra-competitive lower end of the housing spectrum.”
“Short of that, we’ve simply succeeded in packing a whole herd of people into low-cost housing, plugging a Titanic-sized hole left by the financially irresponsible who purchased houses well beyond their means.”
“More than a few economists warn that extending or expanding these tax credits in any form is a slippery slope that caters to the ‘you can’t fix everything by throwing more money at it’ crowd.”
“To be sure, blindly writing trillion-dollar checks and adding to record deficits isn’t a long-term solution. But the current tax credit has allowed thousands of Americans to get in the home-buying game on healthy terms, pumped billions of dollars into a moribund industry and preserved tens of thousands of jobs in the process.”
“Opening that program to second-, third- and 10th-time homebuyers won’t solve all of this country’s housing problems overnight, but it is a discussion worth having.”
The Washington Examiner. “The numbers ‘clearly indicate that the rebound in housing demand observed so far has been largely supported by government programs,’ wrote Anna Piretti, senior economist at BNP Paribas.”
“Locally, sales in everyWashington suburb dropped last month, save Loudoun County. December house sales in the District dropped 16.5 percent to 518, and combined sales in Prince William County, Manassas and Manassas Park dropped 11.2 percent to 578. In Maryland, Montgomery County’s sales dropped 18.1 percent, from 923 to 756. And tony Montgomery County is facing a problem that would have been nearly unthinkable several years ago: Foreclosures.”
“Still, home sales picked up in 2009. Year-over-year sales increased 15 percent nationwide from December 2008, when 4.74 million houses were sold. For all of 2009, the 5.1 million home sales were 4.9 percent higher than the 4.9 million in 2008. ‘It’s significant that home sales remain above year-ago levels, but the market is going through a period of swings driven by the tax credit,’ said Lawrence Yun, NAR’s chief economist.”
Smith Mountain Lake. “In 2005 and 2006, the Roanoke Valley Association of Realtors listed more than 100 new members each year, from 1,418 in 2004 to 1,706 in 2006. Since then, the numbers have dropped annually to 1,404 members as of Dec. 31, 2009. In early January, membership was 1,397, said Laura Benjamin, RVAR CEO.”
“Glenda McDaniel, Realtor with Long & Foster in Moneta, said she thinks the membership numbers peaked in 2006 because people were watching the housing market take off and wanted to be a part of it. ‘What happened there, I think, was you had a lot of people that heard about all the good stuff happening in 2004 and 2005 and wanted to get on the bandwagon and join in,’ she said. ‘People were buying everything. There was a boom during that time.’”
“Business was so good, Realtors almost didn’t have to work to find buyers, said McDaniel. ‘They didn’t have to advertise, they didn’t have to do anything; everything was selling so quickly,’ she said. ‘A lot of people got into the business because it was easy … it’s not easy now.’”
“Matt White, broker for Realty World Properties in Huddleston, said the slow housing market of the last few years flushed out the inexperienced real estate agents. ‘Frankly, they weren’t doing a really good job,’ he said. ‘I think it put a bad taste in people’s mouths.’”
The Baltimore Sun in Maryland. “A Laurel man just pleaded guilty to defrauding a lender of $428,000 in a scheme that was orchestrated at the end of 2008, against a backdrop of slumping sales and tightened lending requirements. Olu Campbell said he worked up a plan with an associate to convince a lender to extend mortgages on three Baltimore homes by making the purchases appear legitimate. Campbell had worked as a loan officer and home renovator. His associate had appraisal experience. Together, they used that background to apply for loans on two of the properties — just not as themselves.”
“What was in it for Campbell? A lot of money, he admitted to investigators. In a single transaction, about $110,000 went to his contracting company, Metropolitan Housing Associates LLC, ‘for the ostensible purpose of paying a ‘contractor invoice,’ the statement of facts says.”
“‘Campbell used $20,000.00 of his proceeds to purchase a used BMW,’ it adds in an aside.”
Southern Maryland Newspapers. “It’s been four weeks since the disappointing news came down from the state that all but six of the 18,344 Charles County homes assessed last year dropped in value, with the county as a whole seeing a 28.2 percent drop. But it will be months before those homeowners find out whether or not that means a break on their tax bills.”
“In January, the Maryland Department of Assessments and Taxation announced that the county’s residential property — primarily the St. Charles and Waldorf neighborhoods — lost $1.7 billion in value. The total percentage of residential improved properties in Charles County that decreased in value was 99.97 percent.”
“‘Property values went up substantially between 2003 and 2006,’ said Robert Farr, supervisor of assessments at the Charles County office of state assessments.”
“One of the major issues will be whether the state Homestead Tax Credit, which has historically been a helping hand for residents, has turned into a burden. While the tax credit has helped during boom times it is proving to be a kick while the market’s down. Last year, Mechanicsville resident Beverly Long received news that the state had assessed her home $100,000 less than the last time. Her first assumption was that while her house might not be worth as much as before, at least her tax bill would be proportionately lower.’
“‘When I got my tax bill in July I almost had a heart attack,’ Long said. ‘We had been knocked out of the Homestead Credit. In fact, we owed $400 more. This was our dream home that’s become a nightmare. I know things cost money, but there’s gotta be a happy medium.’”
The Boston Globe in Massachusetts. “State and federal regulators reached agreements with two more struggling Massachusetts banks to shore up their finances. The Massachusetts Division of Banks and the Federal Deposit Insurance Corp. ordered Athol-Clinton Co-operative Bank in Athol and Stoneham Savings Bank in Stoneham last month to take steps to safeguard deposits.”
“Stoneham Savings, which was hit hard by delinquent real estate loans after the housing bubble burst, lost $9.2 million last year. Athol-Clinton Co-operative lost $2 million last year, primarily because of troubled home mortgages. Bank president Wayne Grimes noted the Athol area was hit hard by unemployment.”
“‘Things are looking up,’ he said, ‘but it’s a gradual process.’”
The Cape May County Herald in New Jersey. “Fox Chase Bank announced a net loss of $1 million for 2009, compared to net income of $1.2 million in 2008. This year’s net loss included a provision for loan losses of $9.1 million compared to a provision for loan losses of $2.9 in 2008. ‘Economic conditions in the Bank’s geographic locations of Southern New Jersey and Southeastern Pennsylvania continued to deteriorate during the latter part of 2009. We are disappointed with the increased levels of nonperforming assets and the associated increase in the provision for loan losses during the fourth quarter of 2009. Continuing high unemployment and weakness in the housing market continue to place stress on our borrowers,’ said Thomas M. Petro CEO of the company.”
“‘The most significant impact on our loan portfolio was continued stress on real estate values as construction loans for residential projects; residential mortgages and home equity loans comprised $24.1 million of our $29.7 million nonperforming loans at year-end.’”
The Charlotte Business Journal in North Carolina. “Last summer, NewDominion Bank became the reluctant owner of 30 vacant lots in an unfinished subdivision in north Charlotte. Seven months later, the small Charlotte bank still pays bills and mows grass for real estate it never wanted. Banks across North Carolina own $4.5 billion in real estate acquired through foreclosure, according to the latest research by Forum Capital, a Charlotte firm that specializes in banking and real estate issues.”
“That’s a 346% increase since March 2008.”
“Robert Fox, a veteran Charlotte banker who’s president at NewDominion…describes the housing collapse and disputes between builders and developers as ‘a dangerous combination.’ And with real estate lending such a big part of banking in Charlotte, most lenders suffered when the dominos started to fall. ‘The business model worked all through the ’90s and most of the 2000s,’ Fox says. ‘We rarely saw a builder walk away from a project. But that’s what started happening.’”
The Gainesville Times. “The developer facing foreclosure on three Reunion subdivision homes in South Hall said he plans to settle his multi-million dollar loan dispute before his property is auctioned off.
“‘Homeowners may rest assured that this dispute has no impact whatsoever on their property,’ said John Wieland of John Wieland Homes and Neighborhoods in a written statement. ‘It’s business as usual for Wieland.’”
“On Thursday, Compass Bank filed foreclosure notices in The Times against the 39-year-old company. The bank is seeking repayment on a $23 million loan it gave Wieland to build Reunion subdivision, a planned community that opened in 2001. In the spring of 2009, Wieland took to the road in hopes of selling 101 homes in 60 neighborhoods in Georgia, the Carolinas and Tennessee.”
“He planned to sleep in a model home in a different neighborhood every night until he reached his sales goal. His first stop was at Reunion where he said he remained convinced that, despite the recession, the time was right to buy a house.”
“‘This is our fourth big recession, and in the three previous it has always been housing that led the economy out,’ Wieland said at the time.”
The Herald Sun. “North Carolina’s economy, like the country’s, appears to have bottomed out and is poised for what’s likely to be a slow recovery from the recession, an N.C. State University economist said Wednesday. Employment should starting picking up soon, but the state ‘will be lucky’ to add 40,000 jobs in 2010, economics professor Michael Walden told city and county managers from around the state in Durham for an annual seminar.”
“The recovery of a consumer-driven economy is likely to be slow-paced because families will devote more of their money over the next couple years to paying down the debts they incurred while they could borrow against rising home values, Walden said.”
“Walden has become one of the go-to people for local government administrators who, budgeting in mind, are eager to get a handle on economic trends. Walden is also well regarded by the state’s conservatives. He has penned numerous articles for the John Locke Foundation, a Raleigh think tank linked to former Republican legislator Art Pope.”
“Regardless of that tie, Walden said he thought the federal government had acted appropriately in 2008 and 2009 to cushion the economy. He noted that the Bush administration was responsible for some $950 billion in tax cuts and bailouts, to go with close to another $800 billion in economic stimulus from the Obama administration. The Federal Reserve has matched them, pumping up the money supply by some $2 trillion.”
“Comparatively, ‘more resources have been spent fighting this recession than were spent during the [1930s],’ during the Roosevelt administration’s efforts to combat the Great Depression, Walden said.”
“But the collapse of the housing market and other problems that caused a 20 percent, $11 trillion reduction in the citizenry’s on-paper wealth demanded such an aggressive counter, he said. ‘I agree with the view we were at the edge, we were right there, and were going to fall off,’ Walden said, referring to the crisis that unfolded in 2008. ‘The combined efforts of both administrations pulled us off the edge.’”
“Repeating what he told the Durham council a year ago, Walden said the Federal Reserve’s attempts to quell an unprecedented housing bubble by raising interest rates helped trigger the crash. Economists there and on Wall Street didn’t anticipate that bubble-busting measures would cause housing prices nationally to retreat, he said. Rather, they saw price increases continuing, but at moderate, historic rates of 2 to 3 percent annually.”
“The housing collapse ‘is why this recession has been so different from other recessions,’ as it has undermined bank and family balance sheets alike, he said.”
