The Housing Bubble

The Next Bubble

http://harpers.org/archive/2008/01/hbc-90002258

O.K., the Superbowl is over. Time for the spring selling season to begin. Who has a forecast on how much the market will pick up? I am thinking that by May, the banks will be stuck with more inventory and prices in Sacramento will be taking another round of serious drops.

Droll piece from the L.A. Times.
“An empire that believes spending is a patriotic act is perilously close to its end. But at least we will have left future civilizations the invention of the 10-year interest-only adjustable-rate sub-prime mortgage.”

http://tinyurl.com/yp3h8l

China’s Middle Finger

http://www.safehaven.com/article-9390.htm

A Trillion Dollar Smile

http://www.atimes.com/atimes/Global_Economy/JB05Dj06.html

This AZ property owner spamming Milwaukee Craigslist

http://milwaukee.craigslist.org/rfs/562185030.html

grrr…
Leigh

disarray:

The leveraged loan market begins the week in “disarray” following the collapse of efforts to syndicate $14bn of the debt used to finance the $27.8bn buy-out of Harrah’s Entertainment, bankers say.

http://tinyurl.com/3av5tt

Off to the shower…g’day!

Leigh

How do the major candidates’ REIC ties stack up? I was quite shocked to hear MR making a preemptive defense for NY financial firms’ involvement in the subprime mess (in an audio link someone posted to yesterday’s bits bucket), in contrast to JM’s apparent interest in first assessing what actually happened and whether foul play may have been involved. My preference to vote for the latter gentleman instantly went up.

Luckily for BO, David Cee has already topped out on his campaign contribution limit…

PAGE ONE
Obama Closes In on Clinton
As McCain Lengthens Lead
In California Race,
Poll Puts Democrats
Nearly in Dead Heat
By JACKIE CALMES
February 4, 2008; Page A1

http://online.wsj.com/article/SB120206305479638875.html?mod=hpp_us_pageone

Funny, but New York Magazine has just published a restrospective of the last really nasty recession in New York from 1989 to 1992, which it says has “eerie familiarity.”

http://nymag.com/news/features/43574/

As for the residential real estate part of the story:

“’There were some tax-law changes in the mid-eighties that made it very profitable for landlords to convert their buildings,’ says Fred Peters, the president of Warburg Realty. Profitable, that is, until the supply reached saturation point just as leaner times on Wall Street began to drain the demand. The shock was sudden and painful. ‘It just stopped,’ remembers Peters. ‘The first half of the year was just like ’88, a banner year, and then it just stopped. The Japanese kept buying for another year. But then it just ran aground.’ In a swift reversal of the conversion boom, people who couldn’t sell their apartments started trying to rent them out, often to no avail.”

And the real estate report linked here

http://www.tregny.com/pdf/market_report_jan_08.pdf

says rents are down 7 percent in some Manhattan neighborhoods. Wall Street layoffs (just getting started) are to blame. My guess is the college graduates don’t show up this spring, because they can’t get jobs, and some are going to have to leave, because they are laid off. Some will stick it out, but the worm has turned until 2010.

Anyone else here sick and tired of the media bleating on and on about sky-rocketing mortgage rates? I know many of us here remember 7% and higher rates of not so long ago. I have to wonder if todays younger mortgage holders/seekers have been breast feed the sweet milk of low rates for so long that they think low, low rates are the norm?

America walks:

“In the past, if a household in America experienced financial problems it tended to go delinquent on its credit cards, but kept on paying its mortgage,” says Malcolm Knight, head of the Bank for International Settlements, the central banks’ bank. “Now what seems to be happening is that people who have outstanding mortgages that are greater than the value of their home, or have negative amortisation mortgages, keep paying off their credit card balances but hand in the keys to their house … these reactions to financial stress are not taken into account in the credit scoring models that are used to value residential mortgage-backed securities.”

http://www.ft.com/cms/s/0/039614aa-d02b-11dc-9309-0000779fd2ac.html

large scale new development in queens ny

it is being built near old shea stadium which is basically a toxic waste strewn auto salvage graveyard with views of flushing bay that smells like death at low tide

good luck

http://www.nytimes.com/2008/02/03/realestate/03post.html?_r=1&ref=realestate&oref=slogin

Leading private equity firms are unlikely to participate in any recapitalisation of Ambac and MBIA, increasing the pressure on banks to come up with a rescue package for the bond insurers.

http://www.ft.com/cms/s/0/3028204a-d291-11dc-8636-0000779fd2ac.html

HERB GREENBERG
How ‘cash’ at companies became risky
Commentary: And they can blame it on the mortgage mess
By Herb Greenberg, MarketWatch
Last update: 7:46 p.m. EST Feb. 3, 2008
This column first appeared in the weekend edition of The Wall Street Journal.

SAN DIEGO (MarketWatch) — If you don’t think cash can go bad, you haven’t been paying attention to earnings reports lately.

This past week, as strange as this may sound, Bristol-Myers Squibb was the latest company to do the equivalent of taking a charge against cash when it announced a $275 million impairment of debt investments that held such things as surprise! subprime and home-equity loans.

Companies don’t really take charges against cash, of course, but investments that double as cash might as well be cash. Auction-rate securities, as these arcane investments are called, were deemed so safe that they sat on the balance sheet not far from Treasurys in a near-cash category called “marketable securities.”

http://www.marketwatch.com/news/story/how-cash-companies-became-risky/story.aspx?guid=%7B7E25BFB7%2D497D%2D4AD2%2DBF93%2DAA40DD8F46D6%7D

Looks like the 2005 seller mentality is alive and well here in Colorado. Check out this POS:

http://www.recolorado.com/Search/propertyDetail.asp?mls_number=610345

For those who do not want to follow the link: a 1360 sqft bi-level (hope you like lots of stairs) located in an exurb of Denver (Parker) which backs to an insanely busy road (Mainstreet) for a BARGAIN of $175/sqft (total $238,900). The road behind the house is elevated about 8ft above the nonexistent backyard so I hope the FB who picks this up enjoys the view of a retaining wall, noise, and the distinct possibility of a FUV crashing through the wood fence (no guardrail of course) and into their house on a steep downward trajectory. Pathetic.

Why, it has unusual features:
“EATING SPACE KITCHEN, GARAGE DOOR OPENER, POOL COMMUNITY, SELF-CLEANING OVEN, WINDOW COVERINGS, NEWER CARPET HARDWOODS, NEW TILED TUB, NEW FENCE W/ LNDSCPNG”.

Ha. Never thought of this:

Judge won’t let homeowners buy loans at
bankruptcy auctions

BYLINE: By PEG BRICKLEY, Dow Jones Newswires

DATELINE: WILMINGTON Del.

A Maryland homeowner lost her bid Friday to force
American Home Mortgage Investment Corp. to let
homeowners pay off their mortgages at the
bargain-basement prices at which they’re sold to
institutional investors at bankruptcy auctions.

Judge Christopher Sontchi of the U.S. Bankruptcy Court
in Wilmington, Del., said there was no legal reason
why homeowners shouldn’t be allowed to participate in
bankruptcy auctions at which hedge funds and other big
investors buy mortgages for as little as 50 percent of
their face value. But he said it isn’t his job to look
out for the interests of consumers in a bankruptcy
case.

“I’m not sure that I have to consider giving the
consumers a fair shake at bidding on their own loans,”
Sontchi said, turning down a request from homeowner
Paula Rush to let her bid in a Feb. 26 auction of 424
American Home mortgages. The face value of those
mortgages, which are sold in pools, is $152 million.

The collapse of the subprime mortgage market last year
threw dozens of mortgage lenders into bankruptcy,
triggering the transfer of billions of dollars in
mortgages at bankruptcy auctions. In several cases
around the country, homeowners have complained that
the transfer made it difficult for them to identify
who owned their loans and who they should negotiate
workouts with.

American Home, one of the country’s biggest mortgage
lenders, collapsed into bankruptcy last year and is
going out of business. Rush, who lives in Churchville,
Md., has been fighting the company since before the
bankruptcy, alleging she was duped into an expensive
mortgage and denied her legal right to get out of it.
American Home won’t tell her who now owns her loan,
but says it was sold to an investor as part of a big
pool of mortgages.

At bankruptcy auctions, mortgage lenders sell loans in
big packages. Last year, for example, American Home
sold a $1.6 billion package of mortgages at prices
ranging from 54 percent to 91 percent of the
outstanding balance of the loans. Rush, in court
papers, argued that if big investors get to buy
mortgages at such heavily discounted rates, homeowners
should be granted that privilege too.

If homeowners were allowed to participate at such
auctions, she said, they would easily be able to
arrange the financing to pay off their loans. “At 50
cents on the dollar, anyone would buy out their loan,”
she said in an interview Friday.

Lawyers for American Home argued at a court hearing
Friday that it would be too expensive and cumbersome
to allow homeowners to bid for their own loans because
those loans are sold in large packages. “The
administrative cost associated with individual
borrowers bidding on individual loans would be
extraordinary,” said Sean M. Beach, an attorney for
the company.

Another attorney, Mark Power, who represents American
Home creditors, said that allowing homeowners to buy
just their own loans would mean “cherry-picking of the
best loans (and) leaving the rest.”

Sontchi expressed sympathy for Rush. Legally, he said,
there’s no reason why “the one person who is going to
be required to pay the full price” on the mortgage the
homeowner should be barred from bidding in an auction.
But said that his responsibility as a judge is only to
ensure that American Home acts reasonably to get the
“highest and best price” for its assets.

Moreover, he said, it’s “unlikely” that financially
distressed homeowners would be able to outbid big
investors such as banks and hedge funds.

http://www.cnbc.com/id/22950993

“I prefer to be more crass: There is a fundamental and deplorable breakdown in financial responsibility in America today. I’ve been saying it for a long time now; I’m sick and tired of everyone running to bail out borrowers who simply made irresponsible financial decisions.”

She has the correct conclusion, but focused on the wrong end of the snake. She blames people that are walking from debt.

It started with the Fed dropping interest rates WAY below inflation. Economic growth, at all costs. Who cares if savers get hurt.

Savers, including pension funds, money markets, insurance companies, equity funds, state and local governments, businesses, etc. find stocks crashing and all other investments, except MBS, paying suck returns. So, desperate for returns to keep up with market demands, they bought MBS… And repackaged MBS in things like CDO, SIV, etc.

Demand for those bonds created the cascading problems. Falling lending standards, specualtive markets, crazy high prices, super agressive used house sales people and mortgage brokers, fooked borrowers comitting to pay way more than they could ever hope to pay based on fantasy that prices would continue to climb at crazy fast pace….

None of the crazy greed would have been possible without the ability to sell MBS, and the ability to sell MBS would not have happened without interest rates being sooooo low for soooooo long.

The greed started on Capitol Hill where government demanded rapidly growing tax receipts so that they would not have to deal with Soical Security and Medicare. The orders to the Fed were “economic growth at all costs”. The cost of the growth was a fake economy built on bubbles, wages rising slower than inflation, and ever-growing mountains of debt at ever lower interest rates.

You want to blame irresponsible financial decisions??? Start with Capitol Hill and fallow the toxic waste down hill from there.

Blaming the fooked borrowers that are walking from houses that they owe way more for than they can sell them for, are the wrong end of the snake. Blaming them is like blaming the arse for the crud coming out of it…. If you want to look for the real blame, start at the mouth and see what it is consuming!

Deregulation, lack of enforcement, encouragement of bubbles, crazy low interest rates, lower tax rates on the uber-rich than the upper middle-class, refusal to address the disaster that is Social Security and Medicare (health costs in general)…. THERE are your REAL poor financial decisions.

General observation and question. Mortgage rates right now are definitely not following the federal funds rate down, and are in fact climbing instead - at least over the last two weeks since BB’s hatchet job.

Perhaps an indicator that there’s an increased perception of risk in the mortgage market the last two weeks? That the emergency rate cut, at least in the short term, is having the reverse of the desired affect - by causing credit tightening instead of loosening?

This shabby mess needs to be cleaned up before the U.S. housing market can hope to adequately meet the needs of U.S. households for the remainder of the 21st Century. WHICH CANDIDATE WILL GET THE JOB DONE RIGHT???

UNION-TRIBUNE EDITORIAL
A shabby mess
WaMu allegations illuminate housing crisis
February 4, 2008

In a dozen different ways, it’s become plain that the toxic combination of greed and dishonesty produced the mortgage and housing crisis that threatens to drag the U.S. economy into a recession.

The latest evidence of this involves Washington Mutual, the nation’s largest savings and loan. Jennifer Wertz, a Sacramento appraiser, is suing WaMu for allegedly blackballing her firm in retaliation for Wertz’s refusal to inflate the value of homes involved in pending loans. In May 2007, Wertz contends, a WaMu manager demanded she change her description of local property values from “declining” to “stable.” Wertz says she refused – and never was hired by WaMu again.

The thrift is far from the only lender whose ethics are in question. A study published last year showed a stunning 90 percent of appraisers felt pressured to make dishonest valuations in recent years, when housing values soared from coast to coast.

http://www.signonsandiego.com/uniontrib/20080204/news_mz1ed4middle.html

My subjective impression is that the BB Fed would take stagflation over deflation any year of the century.

“The worst of all possible worlds is stagflation,” said Janna Sampson, director of portfolio management at Oakbrook Investments.

Stagflation happens when the economy weakens at the same time prices are rising. It’s a problem that can’t be solved with rate moves; rate cuts spur inflation but boost growth, while hikes control inflation but also dampen growth.

http://www.signonsandiego.com/uniontrib/20080204/news_1b4look.html

Home equity loan defaults soar

http://money.cnn.com/2008/02/01/news/companies/Boyd_HomeEquity.fortune/index.htm?source=yahoo_quote

Is the big problem at hand really the foreclosure crisis, or is it the other crisis nobody wants to talk about, related to the near-shutdown of international credit markets? Ya gotta love the way politicians always try to confine the scope of problems to a sufficiently small-minded focus that might appeal to J6P voters.

US urged to focus on housing crisis
By Jeremy Grant in Washington
Published: February 3 2008 19:59 | Last updated: February 3 2008 19:59

Only 11 days after the White House and House of Representatives agreed a $150bn economic stimulus package for the US economy, a Senate version is expected to reach the floor of the chamber for a vote on Monday.

But lawmakers are questioning whether it will do more than send a message that Washington is trying to forestall a full-blown US recession.

Instead of borrowing to fund tax rebates , some suggest there should be a focus on tackling a worryingly high home foreclosure rate. “To the extent this economic crisis has a face: it’s housing. And to the extent there’s a face on the housing crisis, it’s the foreclosure ­crisis,” said Christopher Dodd, Senate banking committee chairman, last week.

http://www.ft.com/cms/s/0/6b5535a6-d28f-11dc-8636-0000779fd2ac.html?nclick_check=1

Comment by txchick57
“Gotcha but does your blood pressure shoot up 100 points every time the witch appears on TV? ”

TV-less since early 90’s. Still, you can hear her decrees on the radio. What riles me is that ‘holier than thou’ tone of hers, coming from basically a dowdy Arkansas lawyer who reinvented herself as a Westchester, NY transplant who believes she is the savior to the masses yearning for her snippets of wisdom. Gag!

1930’s: Hoovervilles

2000’s: Bush Leagues

Chris Dodd is proposing the creation of the “Home Ownership Preservation Corporation”. Dodd wants this government agency to buy distressed subprime loans from lenders.

They’re talking about a simple 15-20 billion for starters. If they succeed in creating an actual government agency to do this, it could be start of something very large and persistent.

I think an agency like this would reward the behavior that led to the subprime meltdown, and perpetuate it, not dissuade it.

Do a Google search for on “Home Ownership Preservation Corporation”. I’d post a link but my posts have not been going through and a possibility might be the links.

Jingle Mail = Self-Debt Forgiveness

So much for the Souper Bowl factor…

February 4, 2008 2:03 P.M.EST
BULLETIN
Giants’ win should have been bullish … what happened?
Bears feeling oddly super

Super Bowl XLII’s outcome is supposed to be a bullish indicator for Wall Street, but you couldn’t really tell from Monday’s action. Yahoo, Microsoft and Google remain a key focus for investors.

http://www.marketwatch.com/

“Whenever the Republicans talk of cutting taxes first and discussing the national security second, they remind me of a very tired rich man who said to his chauffeur: “Drive off that cliff, James, I want to commit suicide.”"

Adlai E. Stevenson, Jr.

The Parable of the Dagger

Once upon a time, there was a court jester who dabbled in logic.

The jester presented the king with two boxes. Upon the first box was inscribed:

“Either this box contains an angry frog, or the box with a false inscription contains an angry frog, but not both.”

On the second box was inscribed:

“Either this box contains gold and the box with a false inscription contains an angry frog, or this box contains an angry frog and the box with a true inscription contains gold.”

And the jester said to the king: “One box contains an angry frog, the other box gold; and one, and only one, of the inscriptions is true.”

The king opened the wrong box, and was savaged by an angry frog.

“You see,” the jester said, “let us hypothesize that the first inscription is the true one. Then suppose the first box contains gold. Then the other box would have an angry frog, while the box with a true inscription would contain gold, which would make the second statement true as well. Now hypothesize that the first inscription is false, and that the first box contains gold. Then the second inscription would be -”

The king ordered the jester thrown in the dungeons.

A day later, the jester was brought before the king in chains, and shown two boxes.

“One box contains a key,” said the king, “to unlock your chains; and if you find the key you are free. But the other box contains a dagger for your heart, if you fail.”

And the first box was inscribed:

“Either both inscriptions are true, or both inscriptions are false.”

And the second box was inscribed:

“This box contains the key.”

The jester reasoned thusly: “Suppose the first inscription is true. Then the second inscription must also be true. Now suppose the first inscription is false. Then again the second inscription must be true. So the second box must contain the key, if the first inscription is true, and also if the first inscription is false. Therefore, the second box must logically contain the key.”

The jester opened the second box, and found a dagger.

“How?!” cried the jester in horror, as he was dragged away. “It’s logically impossible!”

“It is entirely possible,” replied the king. “I merely wrote those inscriptions on two boxes, and then I put the dagger in the second one.”

The Moral is do not fade the Fed.

Did I say ‘dowdy’!? I’m so terribly sorry. She’s ravishingly stunning in those custom-tailored, perky l’il ensembles, and I suppose she doesn’t eat skin like the he-man Huck either (how’s she stay so slim on the fast food circuit?). Word is that those gastric bypass charcoal underwear filter pads are expensive, so I hope Huckabee’s saving some cash for refills.

ECONOMIC REPORT
Layoff announcements jump 69% in January
By Rex Nutting, MarketWatch
Last update: 7:30 a.m. EST Feb. 4, 2008

WASHINGTON (MarketWatch) — A fresh surge in financial-sector layoffs contributed to a 69% increase in corporate job-cut announcements in January, according to the latest tally compiled by outplacement firm Challenger Gray & Christmas released Monday.

U.S. corporations announced 74,986 job reductions last month, up from December’s 44,416 and 19% higher compared with the previous January, Challenger Gray reported.

The financial sector cut 15,789 positions, accounting for more than a fifth of the documented job cuts for January.

Job cuts remain below levels seen in the 2001 recession, noted John Challenger, CEO of the firm that bears his name.

“If the economy dips into a full-blown recession, it will likely be caused by a drop in consumer spending and the effects of the high price of energy,” Challenger said in a release. “In that case, we would expect to see job cutting in areas such as retail, consumer products, and transportation.”

http://www.marketwatch.com/news/story/layoff-announcements-jump-69-january/story.aspx?guid=%7BB61BAFB1%2DB4FB%2D44FC%2D96BD%2DC3F141CCA694%7D

Surprise! Fed survey says banks are tightening lending standards, particularly for RE.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHBPDpMwyUMI&refer=home

Way off topic- but did anyone here get sick after taking a flu shot this year… and if so, what kind of “sick” We recently spent thousands on my husband from a mystery illness that came up a week after he got his free flu shot. Where’s Dr. House when you need him?

OC Renter

I think you asked me how to invest in Cobalt metal. You can go through Credit Suisse, which has a fund that is invested solely in the metal. The agio is not to dear and they seem to have positioned holdings around the world.

For larger purchases, you can also try mineweb.com and cobalt.bhpbilliton.com or AMM.com
for general information the Cobalt Development Institute.

Cobalt treated me well as an investment. I think it is as bogus as corn ethanol in the long run. MHO

http://www.santacruzsentinel.com/story.php?sid=65385&storySection=Business

“Santa Cruz Association of Realtors finds new CEO in Beverly Hills

Kathy Hartman has worked in Southern California for 30 years, but she said her new job running the Santa Cruz Association of Realtors will be like coming home….

Hartman is enthusiastic about the house she is _RENTING_ in Capitola….”

I think the R-word tells it all.

On FBC tonight Cavuto had Peter Schiff. The more that Peter Schiff is on Cavuto, the quieter (in the sense of being “stunned”) Cavuto gets. And Cavuto is honest to say that Peter Schiff has a good track record and has been right the last few years.

So tonight, Schiff said the “RP” phrase. No, he was not censored off of Fox. He did mention Ron Paul before. He was not shy about his support for Mr. Paul. Also, Peter Schiff and Jonathan Hoenig (who is also Schiff-like) have blasted the Health care proposals of candidate Hillary Clinton. Mr. Schiff also did not mince words as he predicted that house prices in the hot areas of California, Florida, Arizona, and Nevada are going to drop 50% from their peaks, and some of them will drop 60% or 70% from their peaks. Fox Business Channel and Neil Cavuto cannot be said to be real estate shills.

The Fed seems flummoxed by the dawning realization that they are pushing on a string. This is a natural consequence of the implosion of the biggest housing bubble in history, which reached gargantuan proportions partially in response to the Fed’s own policies. It is rather as though they have shot themselves in the foot, and are puzzling over the red liquid that is oozing forth onto the ground.

ECONOMIC REPORT
Banks getting much stricter on loans, Fed says
By Rex Nutting, MarketWatch
Last update: 2:18 p.m. EST Feb. 4, 2008

WASHINGTON (MarketWatch) - Banks are putting a stranglehold on credit, the Federal Reserve reported Monday.

Banks are raising their credit standards for mortgages, consumer loans and commercial real estate loans at a pace never seen in the 17-year history of the Fed’s quarterly survey of senior bank loan officers, the Fed said.

Plain-vanilla business loans were also much harder to obtain, the Fed said.

Banks expect more delinquencies and charge offs for most types of loans to consumers and businesses, the survey said. Banks said they were tightening their lending standards in response to weaker economy, reduced tolerance of risk, and decreased liquidity in secondary markets.

The survey backs up the Federal Open Market Committee’s comments last week that credit conditions had tightened considerably, a factor that led to the FOMC to slash interest rates by an unprecedented 125 basis points in two weeks.

http://www.marketwatch.com/news/story/banks-putting-squeeze-credit-fed/story.aspx?guid=%7B7BE04142%2D569B%2D4889%2DAC74%2D4F30FA124B59%7D