Unorthodox Demand With Unorthodox Capital
Some housing bubble news from Wall Street and Washington. Bloomberg, “As residential real-estate prices stage a comeback, Federal Reserve policy makers may be gaining an extra motivation for lifting interest rates for the first time in nearly a decade: They don’t want to let recovery evolve into excess. San Francisco Fed President John Williams said in a speech on Monday that he sees ’signs of imbalances’ emerging in asset prices — especially real estate. After saying that conditions haven’t yet reached a tipping point, he recalled that in the mid-2000s it was too late to ‘avoid bad outcomes’ by raising interest rates once the housing boom was in full swing.”
“Williams told reporters that his housing market warning is ‘not about fighting bubbles, or trying to deal with financial stability’ — it’s more a response to why interest rates need to rise even though inflation remains low. ‘The reason you don’t just let an economy rip — let it grow, and grow, and grow, and just see what happens, is because that usually ends badly,’ he said.”
From CNBC. “While home prices nationally have not yet returned to their peak of the last housing boom, some local markets have surpassed it. Now, some claim the housing market is in a bubble far worse than the devastating one in 2006. The argument: Housing is far less affordable today than it was back then, and the home price gains are driven not by healthy, end-user demand but by a lack of construction, artificially low interest rates, and institutional and foreign all-cash buyers.”
“‘In the days of ‘anything goes,’ ninja financing caused housing prices to lurch higher, which forced people to rush in and buy, which in turn pushed prices higher, thus increasing volume more, and so on. But when it comes to the new-era, end-user buyer, that can’t happen any longer, as buyers actually have to fundamentally ‘qualify’ for the mortgage for which they apply,’ wrote housing analyst Mark Hanson in a note to clients. He calls it an exact replay of the last housing boom, ‘when unorthodox demand with unorthodox capital would pay any price it took to hit the bid.’”
From FOX Business. “During an interview with Maria Bartiromo on FOX Business Network’s Mornings with Maria, former Federal Reserve Chairman Ben Bernanke was asked about the current state of the housing market. ‘There doesn’t seem to be anything remotely like we saw before the financial crisis, people have to look at their individual market, make good decisions, banks have to make good lending decisions, all those things,’ notes Bernanke.”
“He does acknowledge that prices are getting ahead of themselves in places such as New York, San Francisco and Miami. ‘Look, I know prices in New York are really high, that’s actually a good thing in a sense that one way of thinking about house prices is to ask whether the price/rent multiple like a price/earnings multiple on a stock, is really high or not.’ Bernanke continued: ‘In the housing bubble, the prices of houses were way, way higher than the rents seemed to justify. In this case, you’ve got the high rents at least providing some kind of fundamental, which suggests that house prices in those particular areas, it’s certainly not a national thing, should be high.’”
From The Intercept. “Former Federal Reserve Chair Ben Bernanke joined practically everyone in America by saying in his new memoir, The Courage to Act, that more Wall Street executives should have gone to jail for criminal misconduct that led to the financial crisis. Unlike practically everyone else in America, however, Bernanke in a pretty good position to actually facilitate criminal misconduct proceedings, if he wanted to see them so badly — as head of the nation’s most powerful bank supervisory agency from 2006 to 2014.”
“The Fed, like all banking regulators, can initiate criminal referrals to the Justice Department for individuals they find to have broken the law. This acts as the first line of defense to discipline criminal misconduct on Wall Street. But such activities were absent during the period when Bernanke was chair, according to criminologist and law professor Bill Black. ‘The Federal Reserve appears to have made zero criminal referrals; it made three about discrimination,’ Black told Bill Moyers in 2013.”
“And when Bernanke took action, his stumbling attempts at accountability weren’t just inadequate; they were absurd. The one major action his Federal Reserve took regarding specific conduct regarding the financial crisis wound up as the most embarrassing display of fake accountability in the history of the Obama Administration.”
From DNS News. “Amid all the good news for housing lately, foreclosure starts were up by 7 percent in August—driven by a rise in the amount of repeat foreclosures, according to the August 2015 Mortgage Monitor released by Black Knight Financial Services. Repeat foreclosures accounted for 57 percent of the 80,500 foreclosure starts reported in August, the largest share of repeat foreclosures for one month on record, according to Black Knight. While all foreclosure starts saw an increase of 7 percent month-over-month in August, the number of repeat foreclosures jumped by 13 percent.”
The Palm Beach Post. “The federal Hardest Hit Fund has been a flop in keeping Florida homeowners out of foreclosure, a federal inspector general concludes. Only 20 percent of homeowners who applied for help in Florida got it, amounting to 22,400 homeowners in a state that saw hundreds of thousands of foreclosures. A report from the Special Inspector General for the Troubled Asset Relief Program paints a damning picture of Florida’s performance on the Hardest Hit Fund.”
“In a state known for rampant mortgage fraud, federal and state authorities ran no background checks on applicants to the Hardest Hit Fund. ‘Rather than conduct due diligence to ensure compliance with the DoddFrank Act, Treasury has shifted the burden to the homeowner to self-report in an affidavit affirming no mortgage fraud conviction within the past 10 years,’ the inspector general writes.”
The New York Times. “The promise of widespread relief for homeowners facing foreclosure in the wake of the housing bust has never been realized. The government did not require the banks to rework bad loans, which in many cases the banks offloaded on the federal agencies that insured them. Now these same agencies are selling some of these loans at a discount to hedge funds and private equity firms.”
“One of the firms The Times’s report focused on — Lone Star Funds, a $60 billion private equity firm that has become a major force in the market for distressed mortgage debt — has relied largely on foreclosure and resale of the homes to make money. Loan modifications that reduce borrowers’ principal have been virtually nonexistent.”
“In the aftermath of a bust, there is a legitimate role for distressed debt investors who seek to extract what value remains in impaired assets. But the federal mortgage sales are apparently occurring before all borrowers have been given a chance to apply for and receive help that was promised under the terms of the bank bailouts and, since then, under various legal settlements and regulations intended to prevent foreclosure abuses.”
