Bits Bucket For September 6, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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What else is there to talk about?
There are two versions of events. The Washington Post reports that Preferred Stockholders at Fan and Fred would get 100% of what isn’t coming to them, and common stock holders would be diluted but retain equal rights with taxpayers. The NY Times said “their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt.” Which would presumably continue to pay more than U.S. Treasuries.
No word on cutting the pay of those who work and Fannie and Freddie to federal scale.
From the WashPo:
The answer, in Paulson’s plan, is that holders of preferred shares and subordinated debt, a riskier but higher-paying class of debt, might be made whole. Government leaders were reluctant to allow holders of those assets to incur major losses because they are widely held by banks, and major losses could cause a wave of bank failures.
It sure seems like Fanny and Freddie shareholders deserve to be wiped out, preferred or no.
Any clarification of the issues raised in this open letter would be greatly appreciated.
Pershing Square Capital Management Releases Letter to U.S. Treasury Department Regarding Fannie Mae and Freddie Mac
Last update: 10:11 p.m. EDT Sept. 5, 2008
September 5, 2008
The Honorable Henry M. Paulson, Jr.
Secretary United States Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Re: Fannie Mae/Freddie Mac Restructuring
Dear Secretary Paulson:
We understand that a Treasury plan for Fannie/Freddie (”the GSEs”) may be announced this weekend. We thought you might find useful some further thoughts on potential GSE solutions.
As you are likely aware, we had previously distributed a proposed restructuring plan for the GSEs. In that plan, under a prepackaged conservatorship, equity interests would be extinguished, subordinated debt would be exchanged for warrants, and senior debt would be exchanged for new senior debt and common equity in the newly recapitalized entities. The government would write a put to the new common equity holders which would expire in three years.
…
To the extent the Treasury were to bail out the GSEs’ subordinate debt — which was: (1) never implicitly guaranteed by the government, (2) always rated below Triple A by the rating agencies, and (3) held by investors who knowingly took on the risk of loss in exchange for a substantial credit spread above the GSEs’ senior debt — it would endanger the systemic benefits from subordinate debt issuance for every highly leveraged banking institution in the world and the capital markets at large.
Furthermore, we do not believe that the Treasury can purchase GSE sub debt, preferred stock or common stock without incurring an immediate loss to tax payers because of the enormous amount of existing debt senior to these instruments. At a market coupon or dividend yield (to the extent that one were to exist), any debt issued pari passu to the existing sub debt, or preferred stock issued pari passu or even senior to the existing preferred stock would require a yield that would be uneconomic for the GSEs. No third-party investor would purchase these securities regardless of their terms in light of their junior position in the GSEs’ capital structure.
I don’t work anywhere near the rarified atmosphere where decisions like this are made, but if the general culture at that level is even remotely close to where I work, enough letters like this could have an effect. Not completely derail the proposal, and it would have to be a lot of letters coming from very important players in the market, but it could have some impact.
“holders of preferred shares and subordinated debt” = banks “might be made whole.
Who’s Letting Banks Invest in Fannie and Freddie Preferred Stock?
by: Thomas Kirchner posted on: August 28, 2008 | about stocks: FNM / FRE
If there were a wave of bank failures, then the FDIC would go under. IndyMac’s failure alone was what, 10% of their entire reserve?
What happens if the FDIC cannot meet it’s obligations: I am just guessing, but I think that there would be an overt taxpayer bailout at that point, and that would involve Bernanke firing up the printing presses, with all that that entails. It would also effectively nationalize most failing banks.
There is another plan…
Just don’t allow people access to their money, like what was done in Argentina in 2001.
The Citibank affiliate there (along with every other bank) simply closed down, and people gathered in the streets of Buenos Aries banging pots, a group of mothers standing defiant against policemen en masse, on horseback, and social unrest a’plenty.
I really like this website of an Argentinean, that describes everyday life currently.
Scroll about halfway down to a series of youtube videos and get a glimpse of our future, perhaps?
http://ferfal.blogspot.com/
Do this mean that we’ll see 3 new lines on our W-2 Forms for the likes of the…
Freddie Fix
Fannie Tax
and your FDIC Redemption Contribution
Or should we, as Taxpayers, just make plans to barter in chicken eggs, goat milk and used copper pipes for the next 100 years of these impending Dark Ages ?
Damn you Mikey…now the price of eggs, milk, and copper pipe futures is gonna spike on Monday.
So, if I’m hearing that right, FnF backed loans written by the banks and the banks own stock in FnF.
Seems like a nice little circle o’ default right there reminiscent of a black hole.
Didn’t you know the banking system is supported on the backs of an infinite stack of giant turtles?
Yes, but it’s not “Turtles all the way down”. There is only one turtle, and he’s sinking the quicksand. His support system took a powder when Nixon debased the currency, and he’s only just noticed as his head sinks below the water.
Perhaps there was a feeling that they could, with each others’ help, keep the whole thing going. Seems like nothing more than a zero-sum-game now.
I don’t know if they “deserve” to be wiped out, but I think it would be better for America if they contained these losses instead of making everyone pay for it.
The risk you take when you buy a stock (or a house!) is that the value can go down to zero. I understood that when, for example, I bought Ford at 4.25.
> preferred shares and subordinated debt, a riskier but higher-paying class of debt
Risk is the chance that you won’t get your money back.
The NYT, on the other hand, says this:
Investors who own some $36 billion of the preferred shares could also take a big hit. Preferred shares of Fannie Mae and Freddie Mac were little changed in after-hours trading on Friday evening. The shares are down more than 45 percent since the end of last year. JPMorgan Chase, for example, has already slashed by half the value of its $1.2 billion holdings of the preferred shares.
My guess is that the different versions from two main sources represent a strategy — it is hard to imagine that happening by accident.
It is also interesting that the value of the preferred shares fell by 50 pct in recent days…
1990’s recall: Fen-Phen
2000’s recall: Fan-Fred
Posted late yesterday in Bits:
China central bank may need government bailout
By MarketWatch
Last update: 6:33 a.m. EDT Sept. 5,
2008Comments: 23HONG KONG (MarketWatch) —
The People’s Bank of China, China’s central bank, has begun discussions with the finance ministry on ways to shore up its capital, The New York Times reported, citing three people familiar with the discussions…
…The central bank is in need of capital because of its roughly $1 trillion purchase of U.S. Treasury bonds and Fannie Mae- and Freddie Mac-issued mortgage-backed debt…
Cont’d
The comments on this article are a good read.
Leigh
http://www.marketwatch.com/news/story/chinese-central-bank-may-need/story.aspx?guid=%7B032D3542-554A-4A9D-A2B4-4161C6985DC1%7D&dist=msr_1
To all those here (most are more intelligent than I ever will be on financial matters.)
So which is it?
Does this mean that the banks finally write-off the mortgages and the deals finally materialize?
Or, does the cat drink all the water in the pool (reference to something that Ben said months ago.) That is to say, is there now free money again at hand to keep the inflated prices we have going forward?
-
Economic gurus, what’s the answer?
I don’t think anyone really knows that.
IMO, it could go either way, depending on what the new HOLC (govt mortgage company) decides to do with existing and future mortgages. They could decide to keep losses lower by maintaining prudent underwriting standards, or they could do everything in their power to keep prices up (free money for everybody!).
I certainly hope they do not act as a black hole for all the financial firms/Fed to dump their bad debt.
Bazooka Hank wasn’t going to use his backstop-loss program, he’d somewhat assured us not so long ago…
Paulsonocchio’s knows continue to grow.
Lesson for future policymakers:
Carry a big bazooka, but walk softly.
U.S. nears rescue plan for Fannie and Freddie
Fri., Sept. 5, 2008 | David S. Hilzenrath, Neil Irwin, and Zachary A. Goldfarb
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives and prop them up financially, federal officials told the two companies yesterday, according to three sources familiar with the conversations.
Under the plan, which could prompt one of the most sweeping government interventions in the workings of financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies’ common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government.
Instead of giving each company a big capital infusion up front, the government could make quarterly injections as the companies’ losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.
The action would represent a major escalation of the government’s role in private lending. The government would be assuming vast obligations it has historically disavowed, potentially using taxpayer money to make up for private business decisions gone wrong.
We can’t allow a “private” company to go bankrupt. What about all the bonus paid for the last 10 years? Will the government go after that money?
Here is the question. How is this going to play Monday? Complete meltdown because the rescue had to happen or massive joy because no one has to worry about there being enough mortgage money to throw around ever again?
I can see either one being completely plausible.
Why doesn’t the gov’t just make a great big bank and give free loans to homeloaners? I mean c’mon how commie can you get?
I think that is what they have in mind.
The point of free money is extremely irritating, how much will the TAXPAYER be shaken down for when “order” is restored? 1Bil, 10Bil, 100B??? The gov didn’t have the GUTS to stop the wreak years ago. After many years of huge bonuses, salaries, feather bedding, 5* lobbyists, … Hey Uncle SAM HELP!
“TAXPAYER be shaken”
Just find the median household income in the United States (say $50,233.00 for 2007), add $20,000 to that number, and massively increase taxes on those that make more than that. While you are at it, slightly decrease taxes on those that make less than that amount, as a sweetner to the deal.
A majority of the households will see their taxes go down, it can be presented as letting the rich pay “their fair share” while also crowing about “saving the housing market”. For the middle class, the finance, banking, and housing industry, and “the rich” making more than $70K a year, it’s win-win-lose.
What could be more fair than that?
When I talk to my liberal friends about my anger to all these bailouts and handouts to houseflippers, they accuse me of being mean. Granted, they’ll usually say that people who had their second home, went on home-equity spending sprees, or lied on their mortgage applications don’t deserve much, many liberals feel that those poor victims who got adjustable mortgages (at a time when fixed rates were at a 40 year low!) deserve some “help.”
I’ve also been accused of simply being mean when I express anger over the “deadbeat specuvestors tax relief act” that eliminates income tax on forgiven mortgage debt. “After all”, they’ll say, “it’s not like they ever actually had that money.
HOWEVER, in the same breath that I get accused of being mean spirited, these same folks will propose as a solution taxing the few percentage of people who are actually adding value to America, creating jobs, and saving and investing money. To me, *that’s* mean-spirited. Basically they’re saying that we all have to share in the stupidity that brought America down.
Neither democrats nor republicans can resist trying to buy votes! Most republicans propose subsidizing gasoline in some way (eliminate the gas tax, etc), while Democrats want to put a floor under house prices.
I think that trying to put a floor under house prices is worse. The only way you can make a $500,000 house in Manteca make sense is to print so much money that a gallon of milk costs $10
The problem isn’t whether it is fair or not, but that it wouldn’t make a dent in closing the deficit and out-year entitlement gap.
The deficit and entitlement gaps get eaten by inflation, as government backed loans re-energize the upward spiral of home prices.
are your sure they are liberals? from my corner here they do not think that way at all. more like the way we think here.
I agree, my liberal friends are very much against any bailout of house buyers who bought houses they couldn’t afford.
Especially those who bought more expensive houses than they have.
RE: When I talk to my liberal friends about my anger to all these bailouts and handouts to houseflippers, they accuse me of being mean.
I don’t think public perception of this economic meltdown can be split into liberal vs. conservative.
Extraneous to the posters and readers of this blog, I’m convinced the vast majority of people have absolutely no fookin’ idea about what’s going on.
Nor do they care.
The public employee parasites sure don’t give a rat’s azz.
They count the days, hours, and seconds before they score a guaranteed fat COLA driven pension.
As for the hoi-poli…as long as that govie SS, welfare, and obese disability SSI check rolls in for their lotto tix and cigarettes- life’s a beach.
Go sit on a mall bench and watch the people go by…
Inspired?
Their world is relegated to the sports page; Dear Abby; their daily horoscope; how much a gallon of gaz costs; and who’s a finalist on Dancing with the Stars.
Remember…we are Wal-Mart Nation.
I tend to be considered a liberal, and a staunchly opposed to bailouts.
This isn’t a Dem/Rebup thing, it’s a common sense vs. stupidity thing.
Why don’t they call it “common stupidity” since it is so much more common than sense.
Reuven;
I don’t the break down is so much between Liberal and Conservative, or even Democrat and Republican. It would appear, after talking to many folks who identify as either of the above that many of them, while they understand something is not right at that level of economic policy, figure all they need is just to have the value of their own home appreciate financially and everything else will be fine. It involves a lot of belief (superstition) as well as significant levels of ignorance and apathy, in the basic tenet that “real estate always goes up.” In discussions that I have had with some of my colleagues at work, the general meme is that owning a home is ALWAYS the best option, and that only losers and financial idiots rent. The recessions of the 70’s are something that is ancient history to them (indeed, a good number of them hadn’t been born yet) and the similiar episodes of economic strife of the 80’s and 90’s are things they have either completely forgotten about, or think that our economy has changed in such fundamental ways as to make long and severe recessions (or even a depression) beyond their ability to comprehend. It’s sort of like the turkey example that Taleb mentions in “The Black Swan.” In short, the turkey has a pretty good life (for a turkey, that is). The turkey is hatched and cared for on a factory farm, fed and watered every day, given a nice place to live, antibiotics and other vet care for whatever ails him, gets to hang out with all of his turkey friends all day, and in short has things pretty well made. Then one day, just before Thanksgiving, all the turkeys are rounded up and called into the office for a meeting with the butchers…
We live in a society of turkeys. And Thanksgiving is not all that far off now.
Dred
Hey Holy:
even if they gave 30 year ZERO interest loans to people most still could not afford their $500K mcMansions…..
when you include taxes insurance repairs and what about heating cooling costs….
Yes, but what about the “continuous rework” loan suggested by Shiller?
yes rework the loan amount lower each year..who eats the cost?
Sort of like a matching 401k…homeloaner pays on time, and the gov knocks 3% off the loan amount each year????
in 10 years that $500K loan becomes a$350K loan….
But with no equity buildup it’s just like renting….
Yes, but they’ll have the pride of ownership! LOL
Democrats (and about half of the republicans) would love to put a floor under house prices! You do that by printing so much money that $500,000 for a crap-shack in Manteca makes sense (because Milk will be $12.00/gallon)
*shrug* I’m a democrat and don’t want a floor under house prices. Neither do the democratic representatives from my district. Dems have been the party of fiscal responsibility for some time now…
Sharp observation, and it figures that this would be announced on a Friday. I think that the international markets could go into a tailspin, because it would force a devaluation of off-the-books toxic waste. The lack of transparency about the true valuation of mortgage losses is the only thing that is keeping a lot of financial institutions afloat. Bank failures might happen anyway.
For us little people, the lack of financing and the winter slowdown of both the economy and of home sales will probably result in some serious bargains, finally.
Major stock market rally, I bet on Monday. Gold and commodities, as usual, will get trashed. Stronger dollar due to implied government guarantee. Sell your gold this weekend if you can!
How about, “buy more gold after the weak hands have been shaken out”?
“Sell your gold this weekend if you can!”
Who told you gold was EVER hard to sell. Silver eagles and maples are selling for as much as $10 over spot on ebay right now. Krugerands are $50+ over spot.
The decline in PMs is in the futures market, not the physical market.
If that is the case, I’ll sell all mine right now. I have 1,000 silver maples I’d like to unload. Only 8 K-rands though. Any takers on that action, for the amount over spot quoted above?
List them on ebay buddy, you’ll sell them for that or close to it.
I didn’t say I was a buyer. I just said physical is scarce, and thus asks a premium over spot. Educate yourself, and then comment.
Yes, I couldn’t believe the amount over spot that the silver rounds were selling for - I got them for about $ 7 over spot, plus shipping - I’m not selling jack, though. I’ve bought and sold my gold holding 2x before, and always made $$, but this time I’m hanging onto it. When (not if) inflation/deflation/whatever hits, which no one can accurately predict, evidently, then the only currency anyone will understand will be precious metals/maybe diamonds. Maybe. I am selling any “assets” such as collectibles, which we have a few of, for cash to anyone who wants them. We’re using the cash raised for our trip to DisneyWorld this year with my 83 1/2 year old father and stepmother for spending $$, and to buy more gold/silver with.
Anthony, I will buy 100 of your silver maples @ $15.00 each if you pay for delivery. I use paypal. Feel free to email me. Oakash1011@aol.com.
The gold mining stocks were mostly up in the aftermarket, after the F&F announcement. The PTB can’t let the price of gold fall too much farther, because physical demand is going crazy, and if some people start taking delivery on a few of those futures, the whole market could collapse due to lack of physical inventory.
My guess is that a lot of those gold futures are being sold naked.
We’ll see what happens next week.
The only GOLD I trust in is buried under fenceposts number 12, 17 an 23 of the SW corner of the south 40 on the …
Ooops… Rats…Drats!
Excuse us while we attend to some moonlight “gardening” that we appear to have overlooked.
“Quit sweating on the gunbarrel and KEEP DIGGING you Rascally Rabbit”
‘Major stock market rally, I bet on Monday.’
I bet you’re wronnnnnng.
Financials are up big in after-hours trading.
Ok Polly as I humbly see it,
US Treasury bonds will get smacked. GSE debt will be bid up. There is $5 T in GSE debt and a few Trillion in Government debt.
I would not like to be short US Treasury Puts or Long US Treasuries.
Parity between the two should be around 4.37%. That is app a 72 bps drop in Treasuries and a 60bps increase in the GSEs. They are now synonymous.
Bank stocks and financial stocks will rally and rightly so. The government has just injected $5T in liquidity.
Party on dudes.
Now since the government does not like to have 72bps drop in Treasuries every day, there will be probably be an orderly liquidation so that the drop progresses over the week. If someone wants to get in the way of the steam roller…
On Monday, if the government takes over Fan/Fred, their will be hundreds of Billions of dollars changing hands as a result of the interest rate arbitrage.
Who cares what the stock market does, the action will be in the bonds and currencies?
interest rates on US treasuries will go up and down on GSE
Jas won’t like that
So what kind of FNM/FRE shares do the big retirement plans like CalPERS, FERS, Vangard, etc., hold? Joe Sixpack’s golden years may turn into pewter with with verbs like injections and dilution being tossed around in financial board-rooms. It’s a shell-game gone terribly bad, IMHO.
Andrew McCain, progeny of a potential president, resigned from his position on the Board Of Directors @ Silver State Bank on July 29, 2008.
Having served on the Audit Committee, he’d have an in-depth knowledge of the bank’s finances, surely?
Could all that much have happened in the 35 or so days between him leaving with his tale between his legs, and the FDIC closing down the troubled bank, late yesterday?
Ewwww…
What’s that smell?
========================================
“Andrew McCain, son of presumptive Republican nominee, John McCain, has resigned today from Silver State Bank’s Board of Directors. The bank cites “personal reasons” for Mr. McCain’s sudden departure.”
“Andrew McCain was appointed to the Board of the Henderson, Nevada bank in February where he served on the Audit Committee.”
“”When the casinos treat you poorly, let Silver State treat you like a valued customer” is the bank’s declared mission statement.”
http://www.huffingtonpost.com/jayne-lyn-stahl/andrew-mccain-resigns-fro_b_115233.html
Ah, the irony of it.
Go back in time to another silver:
Silverado Savings & Loan.
..and guess which brother of a big shot fell from grace for his role in that ‘other’ massive taxpayer bailout?
Well I was going to post the Lynyrd Synyrd song “That Smell” however when I read the lyrics, just didn’t seem to fit.
Well, with a few minor changes, you could sing it to the fat ladies as follows:
CDOs and broken loans;
brick wall you’re in my way.
There’s too much risk and too much smoke
Look what’s coming up before you.
CHORUS-
Ooh, ooh that smell
Can’t you smell that smell?
Ooh, ooh that smell
The smell of death surrounds you.
Yeah.
Angel of darkness is upon you.
Worthless Loans are all you have (you, fool, you)
So back to the well, beg for more from the FED,
one more drink, fool, will drown you. (hell, yeah)
CHORUS
Now you call up Ben Bernanke.
Can’t get a loan when you’re full of poop.
Say you’ll be alright come tomorrow, but
tomorrow might not be here for you. (yeah, you)
CHORUS
Aw, you, fool, you.
You stick them bad loans in your pack
I know I been there before.
BREAKDOWN
One little problem that confronts you,
lost that money - went off track.
Just one more fix, Lord, might do the trick.
One hell of a price for you to get your kicks. (hell, yeah)
CHORUS
Oh, you, fool, you
Don’t stick that mortgage in your pack.
You’re just a fool, just a fool, just a fool.
Odorously wonderful…
Excellent!
sm,
I bow to your lyrics. Bravo
U.S. nears rescue plan for Fannie and Freddie
Fri., Sept. 5, 2008 | David S. Hilzenrath, Neil Irwin, and Zachary A. Goldfarb
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives and prop them up financially, federal officials told the two companies yesterday, according to three sources familiar with the conversations.
Under the plan, which could prompt one of the most sweeping government interventions in the workings of financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies’ common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government.
Instead of giving each company a big capital infusion up front, the government could make quarterly injections as the companies’ losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.
The action would represent a major escalation of the government’s role in private lending. The government would be assuming vast obligations it has historically disavowed, potentially using taxpayer money to make up for private business decisions gone wrong.
We can’t allow a “private” company to go bankrupt. What about all the bonus money paid for the last 10 years to these “professional” money men? Will the government go after that money?
September 6th, 2008
D-Day (Debt)
Operation Overload
The Term Auction Facility (TAF) is connected to the
The Term Security Lending Facility (TSLF), is connected to the
The Primary Dealer Credit Facility (PDCF), is connected to the
Shotgun marriage between Bank of America (BAC) and Countrywide Financial (CFC), is connectd to the,
Naked shorting rules selectively enforced, is connected to
Treasury Secretary Paulson seeking and getting a blank check approval from Congress to buy unlimited stakes in Fannie Mae (FNM) and Freddie Mac (FRE) stocks and bonds, is connected to
The Fed granting wavers for private equity firms to invest in banks, is connected to Suspension of FASB accounting rules for a year……
its all connected, and its not contained.
Your standard oozing puss-filled festering boil of a debt market shut down across the globe….no problemo.
You nailed it, vozworth!
Chief of Adams National Resigns
Bank Faces Rising Real Estate Losses
http://tinyurl.com/5q6cev
‘Reynolds said that the board would discuss the hiring process at its meeting today and that he hoped to hire a new chief executive “reasonably soon.” He said he would like to hire a woman.’
I think I’ll apply for the job, so I can march around in high heels and boss people like in the movies. I’m one of those women thingies, and I can probably count about as good as the last one they had, judging by past bank performance. I’ll get out all my toes and fingers and everything smart like that.
Women are 2 letters longer than men.
Men are one rib shorter than women.
Really? Would you like to elaborate?
There are 24 ribs in both men and women. We are much, much closer than what society wants us to think. BTW, when studying Human Anatomy, you would not belive the amount of people who got THAT question wrong!!!!
http://en.wikipedia.org/wiki/Human_rib_cage
Too many people reading that fairy tale called the Bible. It’s amazing how stupid it can make you.
My comment had nothing to do with RE though so before I get flamed, mea culpa, and let’s move on.
Nothing in the Bible is as idiotic as your comment. Grow up.
‘Nothing in the Bible is as idiotic as your comment. Grow up.’
Oh, yeah? Explain THIS verse, Mr. ‘The Holy Bible Makes A Lotta Sense Man’.
‘I am a wall, and my breasts like towers: then was I in his eyes as one that found favour. (Song of Solomon 8:10)’
Hmmm? I’m so eager for your words. And before you get started with your rejoinders, bear in mind that I was raised in red rocks fundamentalist Mormon Utarr. Brethren, sistren? I got the Bible memorized. Not by choice, understand, but still memorized. So do your research beforehand.
RE: I was raised in red rocks fundamentalist Mormon Utarr. Brethren, sistren? I got the Bible memorized.
I guess that mean’s you won’t be making an impromptu performance with the hired “showgirls” for the HBB convention in Vegas.
I’ll have to re-think my attendance.
Or, if you like, explain THIS one, Mr. ‘Bible-Speaks-Wisdom Guy’.
‘We have a little sister, and she hath no breasts: what shall we do for our sister in the day when she shall be spoken for? (Song of Solomon 8:8)
I always enjoy that one. At my clan’s Christmas-time family talent show me and my sister Rachel quote that one to sister Bexsy, to see how mad she’ll get and how many candy-bowls she’ll bust this time. It was 3 last year. Or was it four? Hard to recall, with all the laughing and merry shaking of our girly torsos. Hahahah! Ah, those are enjoyable festivities indeed.
‘I guess that mean’s you won’t be making an impromptu performance with the hired “showgirls” for the HBB convention in Vegas.’
Wrong, baybee. There’s no sinner as enthusiastic and purposeful as one who knows the Bible inside and out. It’s like a primer, when you think about it. Have you thought about it?
Golden calfs! Idolatry! Calling thy brother a fool! Burning witches! Eating kine cooked in the milk of their mothers! Talking pigs that try to swim!
Jeezily—it’s a fantastic party planning manual, is what the Bible is.
I’m in love with you Olympia Girl
Don’t forget the nail polish!
Gallons of nail polish can’t disguise anger displayed as bigotry.
I thot the Christian-bashing Ben allowed last weekend was way over the top. Would the same vitriol directed at Jews or gays be allowed?
This forum is called Housing Bubble Blog, not I Think Your Religious Belief System Sucks.
rant/
So many christians, so few lions.
Has anyone heard of people putting together investment pools of money to lend out for mortgages with no leverage at all? I heard somthing this week, and I don’t know if I really believe the description of the deal. Partnership raises money, lends it out on real estate (no idea if this is residential or commercial), collects fees and interest. Presumably, this is an entirely unregulated lending pool. Here is the kicker. The guy said absolutely no leverage. They won’t lend out anything that isn’t put up by the partners as a capital contribution (p’ship equivalent of common stock money).
Doesn’t really matter, but I’ve never heard of such a thing.
Isn’t that the concept of a hard money lender?
Thats exactly what it is….
Sounds good to me, not as an investor but as a taxpayer. The more private money that is sacrificed to this mess the less taxpayer money will have to be committed.
Praise to the knifecatchers for their monetary contributions to the System, and praise to the NAR for their encouragement.
Unless they are selling this as an investment to pension funds…
You do have a point.
I invested in a distressed debt fund that does place money in that fashion.
The rationale as described to me, is fund managers find bubble areas and pick out borrowers who are underwater because of declining house values but who have good jobs and strong credit (you would have thought the original lender would have thought to do this….).
They then find distressed banks (which aren’t hard to find in bubble areas) and offer to buy the loan for 30-40 cents on the dollar. Then they go to the homeowner, offer to give him free money by cutting the mortgage balance by 30-40%. Presto, everyone is happy - the bank got rid of a loan, the borrower got free equity and the hedge fund got a performing loan with instant appreciation.
Of course if housing goes to 0, then the investment sucks but investors must have some faith that the botton is somewhat near.
So business model is they are able to make a decent return by having way more information than the original distressed lender does and paying very low amounts for the few loans that might pay out? OK, that at least makes some kind of sense.
You don’t have to have faith that the bottom is near in order to know that housing is not going to zero. Yes, it will probably overshoot the long-term trend on the way down.
I like the plan that the distressed debt fund that you allude to is running. Even though they may be a bit early.
The only fly in the ointment that I can see is: can they pull enough vig out of the arbitrage on the loan plus any additional interest to compensate for the risk?
Just speaking for myself, I would need to see potential returns of at least 20% p/a over a diversified pool in order to speculate in that fund at this point.
I agree Landlord…
You have described az_lender’s operation pretty well. No leverage, it’s my own money. That’s one of the reasons it costs 9%-10% to the borrower. At the same time, I lend on MH’s (if the land is part of the collateral), and other stuff FNMA and Freddie wouldn’t touch. Ha ha to them. I am doing fine.
I have been fortunate in recent months/years to be able to lend mainly at 70% LTV or less. Today I have to consider a request that is a serious 80%. The borrower wants to overpay for the property, but I know the comps. The loan I am offering is 80% of the conservative price. The seller “has to get all cash.” Well, screw that. The seller can perfectly well take a small second, or as far I am concerned, kiss the sale goodbye. The seller is not a bank or anything, but an individual whose property has been on the market for a while.
Okay, rant off.
az, do you ever advise clients on the proper fmv of a property? It seems it would be in your interest (and it seems that it would be in a banks interest to do the same).
So like in the case you are referring to. It’s one thing to tell your client you are only going to give 70 or 80% of the stated sell price and not explain why. But do you ever expressely say “Look, the property is only worth 90% of what he is asking in today’s market, that’s why I’m only willing to give you $x.”
It seems that in this type of transaction, the borrowers would sometimes “take the side” of the seller and perceive you as a hindrance to some degree and possibly just try to take there business elsewhere.
If they perceived you as being on their side, having a similar interest in making sure the price represents FMV, they would be more likely to stick with you and make more effort on pushing back for a lower price.
Just curious.
The answer is yes. In this case I told the buyer/borrower that an exactly comparable property had sold in April 08 for 10% less, and that I was going with the lower price as the fmv. The buyer/borrower, being a lefty loon (pardon me), is more interested in the seller’s welfare than in mine. So be it, I can lend my money to FNMA/Freddie…no, scratch that…I can keep it in FDIC-insured places till FDIC croaks.
Good for you, az lender.
I’d stay away from 80% loans right now on MHs. But that’s just me.
Good luck!
Good point, AZ. But we know you are smart and special and work at this. When I get these calls, I assume the people behind the idea are mostly bozos who want to deal with so much volume that they don’t do things like knowing their comps and such.
I think John Mauldin is looking into something like this.
In an effort to keep Fan/Fred running the Govt has decided to screw millions of shareholders for the benefit of companies whose management decided to take on billions (maybe trllions?) in bad debt.
Can those execs that were just fired be dragged off to jail just for once? Please?!?
The troubles with trillions…
$tar Trek
Does anyone have the complete list of the “Rules of acquisition”?
Ahh the Ferengi, one of my favorite aliens from the Star Trek World. Never had any hidden agenda if you understood they operated on profit.
Here you go Colorado just a few to start you off and the rest is at this link http://www.sjtrek.com/trek/rules/
Once you have their money … never give it back.
Never pay more for an acquisition than you have to.
Never allow family to stand in the way of opportunity.
A man is only worth the sum of his possessions.
Keep your ears open.
Small print leads to large risk.
Opportunity plus instinct equals profit.
Greed is eternal.
Anything worth doing is worth doing for money.
A deal is a deal … until a better one comes along.
A contract is a contract is a contract (but only between Ferengi).
A Ferengi without profit is no Ferengi at all.
Satisfaction is not guaranteed.
Never place friendship above profit.
A wise man can hear profit in the wind.
Nothing is more important than your health–except for your money.
There’s nothing more dangerous than an honest businessman.
Never make fun of a Ferengi’s mother … insult something he cares about instead.
It never hurts to suck up to the boss.
Peace is good for business.
War is good for business.
A lot of those rules are pretty good. If you have the lobes for business.
8 years ago, oil was about $20 a barrel, we had a surplus and Fanny and Freddie wasn’t in the Taxpayers’ soup line.
Somebody has been stealing Big Money somewhere folks and don’t give me that 9/11 changed everything crap
the Govt has decided to screw millions of shareholders
What the hell are you talking about? FF are insolvent, that’s the very reason the government is stepping in. There is no shareholder value.
How do you know it was the execs just fired who are culpable? Some times the execs who perpetrated a mess are long gone by the time a company is shuttered.
I think the death of 5.2 trillion bad paper cuts would be more fitting.
Wheee-Doggies!
FAN and FRED busted.
LMAO…And all those clowns over at Raging Bull tellin’ me 4 years ago how the pair represented the gold standard for stock ownership.
The real scarey thing is that they are goin’ to be controlled by the complete idiot savants at FHA/HUD, who couldn’t manage a bag lunch picnic if they tried.
Famous last words…it’s all contained.
My take on the situation with FAN & FRED is that in the last 6 months
the bag-holder lenders off-loaded their junk loans to F&F . The question should be ,”How much paper was bought by F&F in the last 6 months ?”
”How much paper was bought by F&F in the last 6 months ?”
Next question: How much of that paper will get offloaded on Uncle Sam come Sunday?
FanFred & sum turned out to be the proprietors of a junkyard full of used debt.
Life is like a 1970’s tv show, if watched backwards…
Is that you, Lamont?
Opinion is clean up the mess & put them out of their misery PERMANENTLY, and let 100% private organization handle mortgages!
Bwahahaha. Like these commies for the kings are going to allow that to happen. I have a better chance of growing a 3rd nut by dinner time.
Tulip Blips?
When I was a lad, daddy warbux was quite the wheel on the Pacific Stock Exchange, and back then, you received actual stock certificates when you acquired shares, and typically they would be put into a safe-deposit box.
Wall Street put the kibosh to this practice once everything could be easily computerized, and today about the only thing that verifies you own anything, is computer data.
We watched early on in this reign of error, as Enron destroyed all the evidence of their crimes, shredding parties for the hard copies and Arthur Anderson did their best to destroy the soft copies.
I suspect we’ll see much more of this activity happening, as companies on the verge of insolvency cover up their tracks…
This might be the most moronic piece of writing I have ever read. Even for this babboon this is awful writing with no coherent thought process apparent. This guys is complete scum.
http://tinyurl.com/5p4rq7
RE: scum
Food, shelter, clothing…the basics.
The majority of clothing and the skill to produce the product is now in the hands of the Commies and assorted other 3rd worlders.
The Federal government will determine whether or not you have a roof over your head.
Imported food will poison us all.
USA-No more NUMBA #1 GI!
From the link (Jim Cramer):
The Treasury’s takeover of Fannie and Freddie can change that because once mortgage paper packaged by the government enterprises is federal government paper, then ANYTHING can be worked out with the borrowers, and the borrowers represent the lions’ share of the troubled homeowners in the country who have not already defaulted.
The government can cut the mortgage payments, and it can extend the terms, say to 45 years. It can take any hit to keep you in your home, and the paper is still insured.
Put simply, there will be no reason to foreclose, and no reason to walk away. That will DRAMATICALLY reduce the amount of foreclosed homes coming to the market. It will dramatically reduce the amount of money people owe on their mortgages.
On the other hand, a lot of people’s “rigid” personal morality can suddenly become veeeeeeery flexible when it comes to the Government. I have friends who regard themselves as TOTALLY trustworthy and at the same time boast about, to put it bluntly, committing fraud against the Federal Government when it comes to their tax returns.
(Note that I’m not talking here about using loopholes in the legislation to reduce or avoid tax; I’m talking about outright fictitious deductions and/or non-declaration of income.)
I suggest a lot MORE people will not hesitate to conduct a tactical walkaway (or totally trash their property before leaving of foreclosed) if it’s the Federal Government who will take the loss.
I had the first meeting of my ceramics class this week. I took one last winter, but skipped the summer. The teacher is a young guy who teaches the weekend/evening classes and has a day job. They won’t run a class without 6 people, and they max out at 12. Students are mostly adults who just like doing it (non-credit, expensive, but not ridiculous for 15 weeks and unlimited supplies and studio time) and also college students who are getting their undergraduate degrees (for credit - costs double) Last winter, we had one college kid in the class, and a bunch of regular adults in the intro class who were just doing it for fun. I think this teacher also had a second intro class and an advanced class. This year, the intro class and the advanced class were canceled. The one I am in is pretty full, but only a third are adults doing it for fun and the rest are college students and public and charter school art teachers who are probably doing it as professional development (perhaps subsidized by their schools).
The “play around” money is getting pushed out of the system. Also, the teacher is taking home a bit less than he did last year.
“The ‘play around’ money is getting pushed out of the system. Also, the teacher is taking home a bit less than he did last year.”
Deflation, my friends.
So we’ve come to that fork in the road…
Painful obvious deflation of wages, up against painful obvious inflation of needs, what’s a government to do?
If they do nothing, things deteriorate and the gap widens.
If they print rectangles like there’s no tomorrow, the chimera continues on a wee bit longer.
The Treasury is going to take on the responsibilities of Fannie and Freddie and you think that points to deflation long-term? Check out what that monkey Cramer thinks they should do with Fannie and Freddie. That ain’t deflation that chimp is praying for.
“The Treasury is going to take on thre responsibilities of Fannie and Freddie and you think that points to deflation long-term?”
Long-term? In the long-term we are all dead. But to get to the long-term you need to get through the short-term, and the short-term is deflationary as unemployment rises, money is written off of balance sheets and disappears from circulation.
But don’t you think the Treasury will be creating a ton of new money to inject into the failed GSEs?
“But don’t you think the Treasury will be creating a ton of new money to inject into the failed GSEs?”
Wouldn’t that be devaluationary?
Devaluation is inflation.
Both of them mean money buys less stuff.
Currency devaluation means more monetary inflation. Currencies can only be devaluated relative to other currencies, since no one operates on the gold standard anymore. I’m guessing that both the Yuan and Euro are going to take a hit as people move back into dollars now that the Fed is riding to the rescue. Forex will be fun to watch for awhile.
Asset deflation means you can buy more stuff for cash, and has the opposite effect of currency devaluation. That’s what’s happening in housing, stocks, and commodities.
I like to use the example of Frito Lays sunflower seeds, my life-long addiction.
2 years ago, a 99 Cent bag weighed 5 1/2 oz’s
Today, that very same 99 Cent bag weighs 4 3/4’s oz’s.
15% inflation hidden away, while keeping the price the same…
Tricky, eh?
Here are some new numbers on the estimated bailout figures (at least new to me).
http://mises.org/story/3062
The takeover means less # of fools will be taken out of the gene pool, but still wounded. Instead of a catastrophic housing meltdown, a heavy downpour will occur & oil may stick south of $100.
I am witnessing homes in Northbrook IL for sale below cost & sitting on the market 1 year, 2 years … many price reductions & still no sales.
Gee, who wants to buy a 6 room 60 year old ranch, 100 yards from the RR tracks for 300K? Chances of places like this selling will not change after the takeover, but properly priced homes in decent locations, with well qualified buyers should be able to find financing in the post D day environment.
The poster child was priced $437K in late ‘07, a BARGAIN at 300K now (He paid $416K in ‘05)
http://beta.realtor.com/search/listingdetail.aspx?pgsz=3&loc=northbrook%2cil&ml=8&mxp=600000&bd=3&typ=1&sby=1&sid=d54117e735ca411fa704aa6a8b6d3c62&lid=1090499966&lsn=17&srcnt=172#Detail
“Devaluation is inflation.”
Devaluation is not equivalent to inflation, but it can certainly be a cause of inflation. Devaluation means that the currency in question loses its value relative to other currencies. This can immediately raise the price of imports, and with completely free trade and rational agents, would also raise the price of domestic goods, as the law of one price coupled with devaluation would mean domestic producers could sell more to the export market than to the domestic market.
Any questions?
RE: Deflation, my friends.
My AM “go get coffee” inflation report….
Local regional news rag upped their price 50% from 50 to 75 cents as of this AM.
From the Beantown Herald front page…New England Patriots average ticket price up 22.9% to $118.00.
Estimated cost for a family of 4 to attend game with food and trinkets…$600.00. Up 29% from year ago.
Wait! I hear helicopters coming!
Estimated cost for a family of 4 to attend game with food and trinkets…$600.00.
$600?
Egads!
That’s like takin’ the kids to a fancy restaurant, only with more colorful language.
Skip a couple of games and buy an HDTV.
Now that would be inflation if tens of millions were affected. I don’t pay for newspapers I read them for free online. My lazyboy is a much better seat then a stadium seat and I can see the same game and don’t need binoculars. The beer and hotdogs are also much cheaper!
Amen to that WAman !
The do-gooder women in my family have been trying to get rid of my favorite ratty lazyboy for years. I just invested in a couple of good deadbolts, turn of the phones and refuse to answer the frontdoor for anyone on Football Days. I can open a bottle of beer, rip into a bag of chips and nuke a hotdog in the microwave as well as any girl I know
Raising prices works well as long as customers have the money and are willing to part with it. With unemloyment rising and wage cuts in the air I wouldn’t depend too much on price rises to sustain a business.
Well i guess we will extend the football season to 24 games and freeze players salaries….oh the union will love that!
==============================
I wouldn’t depend too much on price rises to sustain a business.
I’m betting that $118 football tickets, $150 concert tickets etc. will be short lived. These sorts of entertainment expenses are not sustainable in such difficult times. Good luck, scalpers.
Like the $750 waterpolo tickets at the Olympics. Lots of empty seats.
I heard only 600 people came to a Flrida Marlins game the other day…
Making a living as a potter is a tough gig, here’s a link to an article I wrote 5 years ago about a bunch that live and work in Maryland:
Writing Lessons from Pottery Masters
http://tinyurl.com/6f85tv
FED = Chimera Rogue
I remember reading (and being tossed around on the HBB) that many, many of the folks who work at Fan/Fred tied their pensions up in loads of their own stock. Wonder how they feel about that move now? Think they’re mad now that the smoke screen of invincibility has cleared?
I watched in horror as my my mom’s many shares of Fannie went from $60 to $6, feeling a little better when she finally bailed out @ $17, but not really.
Oh how I tried to make her understand, late last summer…
So, alad, how much “value” do you think gold will lose on Monday? $50, $75. Even though one would think it should go up due all the bailouts, methinks it will be exactly the opposite since people will look at this as a stability measure. I noticed the disconnect is still going on in the physical, with APMEX once again selling out of K-rands.
Anthony:
I’m a decade trader and you appear to be a day trader that sweats the small stuff…
No comment.
Anthony, How much are you asking for your K-rands and Maples?
Anthony, I will buy 100 of your maples for $15 per maple, altho this is negotiable. I am perfectly happy buying them - as I posted above, I use paypal, or will send certified check if you’d rather. You’d have the funds same day if you did the paypal, however. This would be shipped by you, or will split the shipping/ins. Feel free to email Oakash1011@aol.com if serious about selling.
They got Enroned? Tyco’ed? Wow. That will take just a little bit of froth out of DC/NoVa. And every little bit helps.
Don’t forget to add IBM. Wow, oh wow, people just don’t learn from the past.
RE: many of the folks who work at Fan/Fred tied their pensions up in loads of their own stock.
I used to rag on the Raging Bull Investor FAN/FRED personal boards that the GSE’s were enabling a fully corrupt and dishonest real estate system, to which I received a barrage of haughty and arrogant BS from stock holders and former employees, noting that both entities were fully transparent and their portfolio’s subject to rigorous oversight, and they represented the absolute gold standard for stock ownership as demonstrated by the incorporation of the stocks in a bazillion mutual fund and pension portfolio’s.
Hey, hey, my, my…Implosion Monday!
> noting that both entities were fully transparent
Absolutely transparent, except for the failure to file financial statements.
They are looking pretty transparent this weekend alright.
Like two little pink jellyfish, they carry an awe full sting.
So when congress gets stung do we have any volunteers to pee on them?
I’m just trying to help out here…
Apologies to Neil Young:
Hey hey, my my
Fan and Fred can never die
There’s more to the picture
Than meets the eye.
Hey hey, my my.
Out of the red and into the black
You pay for this, but they give you that
And once you’re gone, you can’t come back
When you’re out of the red and into the black.
The debts are gone but they’re not forgotten
Is this the story of johnny rotten?
It’s better to burn out ’cause rust never sleeps
The debts is gone but they’re not forgotten.
Hey hey, my my
Fan and Fred can never die
There’s more to the picture
Than meets the eye.
Hey hey, my my…
I’m not sure I’d say these workers tied it up - I suspect it was tied up for them.
I work at a bank and for our 401Ks the “matching” funds they contribute is all in the bank’s stock. Over time this means a disproportionate amount of my savings will be tied up in my bank’s stock, of course…but I’m hoping that won’t be a problem come 2045 or so =P
You can have that stock sold, by law now. It used to be the company could require your 401k held that stock for a period. After enron one of the laws changed that, they can no longer require that. You should be able to contact the 401k manager and have him sell that stock and do something else with the money.
hmmm, thanks for the comment bluprint - I’ll look into it.
Having so much of my 401K savings tied up in the bank’s stock has always bothered me but they sure don’t advertise selling it as a possibility (which is why I was left with the impression I didn’t have a choice!).
I work for a university now, but my last job was the same situation. They contributed stock. I would regularly sell it when it got too big, maybe every 6 mos or so.
It just seems like a bad idea to me all around. Too many eggs in one basket. If the company tanks, you get shafted on multiple fronts.
I believe that by law your company can make you hold onto the company stock for up to three years. After three years, you’re allowed to sell and reinvest in something else. But a lot of companies now permit you to sell it right away, without waiting the three years. The laws for company stock changed after Enron, to permit folks to diversify out of company stock matches.
Just a guess, but maybe they can make you leave it in company stock if you are not fully vested in your matching funds. So they can control where it goes as long as you have to give it up if you leave before a certain date.
I did some quick research and it appears that the company can still require the 401k to hold it for 3 years. The federal law stated that a company has to allow employees to divest after 3 years. I suppose the company I worked for either allowed it immediately or perhaps allowed it for those fully vested.
I don’t know how being fully vested in the 401k changes things or if it does. In any case, it’s worth looking into. Thanks for the additional comments bungalow and polly.
I’ve know a few people who worked at Fan/Fred and they all owned a ton of stock. I have a friend now whose wife works at Freddie. He claims she sold off most of it at the end of last year and wasn’t happy about the price back then.. I can only imagine the panic now.
Too late for common stock owners to panic now…
From the Waterloo Region Record/Toronto Star:
Banker details credit crisis lessons
TheRecord.com - Business - Banker details credit crisis lessons
The Canadian Press
CALGARY
The global financial system has been “pushed to the brink” in its most severe downturn since the Great Depression, although the actions of American policy-makers have averted disaster, the head of Canada’s largest bank said yesterday.
“Not since the (Second World War) has the financial system itself been in such a state of dysfunction,” Royal Bank chief executive Gordon Nixon told a roundtable of prominent business leaders.
However, “decisive actions” such as the bailout of investment bank Bear Stearns, which was bought by JPMorgan in a deal orchestrated by the U.S. central bank, prevented a potentially disastrous ripple effect from taking place.
The effect of the credit crisis that began in the United States last year has created a “new normal” in the financial sector, Nixon said.
“The days of cheap money enabling the most aggressive or even the dumbest guy in the class to succeed are gone,” he said.
“The days of cheap money are over.”
That’s the point right there: Is it really the survival of the fittest and every dog for itself?
Thank goodness our policy-makers were able to avert disaster, says Nixon…
That is like so, reassuring.
Steady rain here in the White Marsh area of Baltimore metro. Impressive from Hanna. And it’s not too windy - yet - here about 1pm EST. You can tell it’s a tropical storm. Windows kind of steamed up. Weather sites predict 1 to 2 inches of rain.
The thunder storm in Phoenix the last Thursday of August had gusts up to 85 MPH, so I’m not too concerned about this tropical storm.
The humidity here in New York City is awful. It is disgusting outside. It hasn’t started raining yet.
You should come take a vacation to Alaska. 60 degrees sunny and slightly nippy enough to wear a long sleeve shirt, with hints of fall showing up in the arboreal canopy. The tourists are finally leaving, making the roads drivable and the sidewalks walkable again. I can now get a table at some of my favorite restaurants in under 20 minutes again. Even the skeeters have been quiet, so it makes long walks and geocaching even more enjoyable.
Dude, life is good
From Arkansas, my brother now works in Alaska. The first year or two he was in anchorage. It was funny because during the summer he would often be wearing a long-sleeve shirt or sweat shirt (usually in the morning) much to the dismay of coworkers who would be complaining about how “hot” it is.
Now he works on the north slope. Evidently no one ever complains about it being too hot there.
You must love those long dreary dark days that will soon be there!
After a summer in DC, I am just about ready to defect. That sounds WONDERFUL.
Hah.
I grew up there — I really, really don’t miss August in DC. But the spring and fall seasons are pretty nice.
Basement of our townhouse flooded in Fairfax. Called the property managers, and they sent a crew right over. One of the benefits of being a renter. Also, I’m glad we’re renting from professional property managers that bought their rentals two decades ago, rather than from a stuck flipper.
Sunny and hot in Phoenix although the mornings are getting cooler in the 70’s. Maybe the moonsoon is over ?
A most pressing problem: How will Congressmen fund their reelection campaings in a post-GSE era?
I’m sure Dubai or some other sultanate will be picking up the tab, from now on…
Good thought! Perhaps sovereign wealth funds could add Congressional campaign contributions to their portfolio strategies…
As if they don’t already.
The US has the best government money can buy
And the Congress had the best GSEs they could hit up for campaign finance that favors could reward. Let’s keep a watch going forward on how the reconstituted GSEs serve a similar purpose to the old ones.
They’ll be funding their campaigns from the new entity(ies) that they will create to replace the GSEs, of course. You don’t think they’re going to miss a trick like that, do you?
Perhaps the new entities could be structured to preclude Congressmen lowering their snouts into the trough?
Yeah, right. Guess who will determine the structure of the new GSEs.
Are you suggesting the foxes are going to design the chicken coop with a special hidden back door where they can sneak in as needed to steal chickens whenever they get a bit hungry?
The prime ARM reset skeleton is out of the MSM’s closet now. Surprise!!!
9% of U.S. mortgages in distress
Exotic loans are blamed for problems in market
By Alan Zibel
ASSOCIATED PRESS
September 6, 2008
WASHINGTON – The source of trouble in the mortgage market has shifted from subprime loans made to borrowers with bad credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.
The Mortgage Bankers Association said yesterday that more than 4 million American homeowners with a mortgage – a record 9 percent – were either behind on their payments or in foreclosure at the end of June.
In California it was worse, with 9.6 percent of homeowners in some level of distress.
“It is surprising the depth of how bad this mortgage problem is getting,” said Kelly Cunningham, economist for the San Diego Institute for Policy Research.
…
More than one out of 10 borrowers with a prime ARM is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter and is expected to rise as more homeowners see their monthly payments spike.
The pattern is similar in California. The statewide delinquency rate for subprime adjustable loans decreased 0.46 percent to 18.59 percent, but the delinquency rate for prime adjustable-rate mortgages increased by 0.94 percent to 7.65 percent.
Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period. Others gave the borrower the option to “pick a payment,” adding any unpaid interest to the principal balance.
With home prices plummeting, particularly in California, Nevada, Arizona and Florida, many borrowers with these exotic loans now owe more on their homes than they are worth.
Worse still, these loans reset to higher monthly payments when borrowers reach maximum debt limits – typically around 10 to 25 percent more than the original loan.
Those resets can increase the borrower’s monthly payment by more than $1,000 a month on average, Fitch Ratings said in a report this week.
And nearly half of these pay-option loans are expected to reset to higher monthly payments by the end of 2010, Fitch said.
Time for Ben Stein to pipe up reminding us that this is only
0.1%, err, X% of the market, so all is well.I hit the mute botton when he comes on….
“The Mortgage Bankers Association said yesterday that more than 4 million American homeowners with a mortgage – a record 9 percent – were either behind on their payments or in foreclosure at the end of June.”
Wow, isn’t the historical average for all mortgages around 1%??
A little quote from Bill Mauldin’s Sept 5 newsletter: “Think about this: Freddie and Frannie guarantee 50 times their current capital in mortgages. What would a 2% default rate do to them?”
9% is a histerical level
Bailout Nation
by Portfolio Staff
Sep 6 2008
That may be a bazooka in his pocket but Fannie and Freddie shareholders won’t be happy to see Hank Paulson.
Waiting for Go Dough…
methinks the van gough dough might become abstraqct
Groan.
you got that one right hoz.
the entirety of the blogosphere is one large collective groan regarding the big plan for the GSE’s.
Everybody hold on to your milkshakes, uncle Sammy is thirsty.
Funny that the day after the Republican (we must shrink big government now!) nomination, the current Republican administration is nationalizing the largest private bond issuer in the US(SR).
New Online Real Estate Scam
http://www.firstcoastnews.com/news/local/news-article.aspx?storyid=118201
The poster also told Purvis, in an email, that he was the owner of the home and that he was in Nigeria for a Christian crusade. He also noted he just needed someone to take care of the house for the next four years while he was gone. He also told Purvis that he was a, “kind, honest and trustworthy man
How could you not trust a person in Nigeria who is on a Christian crusade and is a kind, honest, trustworthy man? Where do I send the check?
Happened to me not 2 months ago, when my lease was up and I was looking for a new place to wait out the bubble rubble. Rent was too good to be true. I tracked down the real owner from the property records and made her a direct offer to rent. She was puzzled and told me that it was for sale only.
I laughed and told her that someone was going to be “renting” it soon. As soon as I saw Nigeria all the flags went up.
It might have worked considering all the abandoned properties around. You would have to make your own keys, though!
Report: San Diego Real Estate Undervalued
Housing 17% Undervalued, Report Says
http://www.nbcsandiego.com/news/17405486/detail.html
Alexiou said that 40 percent of his clients are investors from Arizona who are paying cash for foreclosed properties. He said that others are first-time homebuyers using help from the Federal Housing Administration to guarantee their loans.
CA investors in AZ properties are being replaced by AZ investors in CA properties? Must be that those CA investors just don’t know where the deals are today; open your eyes, they’re right in your backyard! Or maybe the CA investor is broke from buying all those AZ properties. I’m confused.
FHA = next year’s bailout recipient?
Foreclosures, Overdue Mortgages Increase Again
Troubles Extend Into Prime Loans Via Option ARMs
By JAMES R. HAGERTY
September 6, 2008; Page A3
…
Among loans insured by the Federal Housing Administration, 14.87% were overdue or in foreclosure, up from 14.73% a year earlier. The portion of FHA loans going bad is likely to increase in the quarters ahead because of a surge in new loans insured by the federal agency.
The share of new mortgages insured by the FHA leaped to 23% in July from a low of 1.8% in 2006, according to Inside Mortgage Finance, a trade publication. Guy Cecala, publisher of Inside Mortgage Finance, said the FHA’s share might reach 30% by year end. The FHA is taking a far bigger share of the market because investors last year began shying away from buying mortgage securities that don’t have backing from a federal agency or from government-sponsored mortgage investors Fannie Mae and Freddie Mac. Fannie and Freddie recently have become more cautious about buying or guaranteeing mortgages because default-related losses have depleted their capital.
Borrowers can get FHA-insured loans with down payments as small as about 3%.
Thomas Lawler, a housing economist in Leesburg, Va., said the pace of foreclosures is likely to continue increasing through at least early next year. The increases will come largely from mortgages that turned out to be “not very prime,” he said. Mr. Lawler added that lenders “have become massively more aggressive” in cutting prices on foreclosed homes in an effort to reduce their inventories.
Pretty much off topic;
I asked my neighbor if her house mate would be interested in dog sitting for me so I can go to LV.
She told me her new tenant is at the hurricane spot because she is a Photographer for FEMA.
Good gov. in action.
What does the stock market do with this news on Monday? Huge “relief” rally? Or does the bailout make it clear how big the U.S. debacle is?
It is going to be good for the very weak banks like Wachovia and Wamu and bad for the stronger banks (the cost of money and margin spreads narrow). Approximately 100 small and midcap banks get clobbered (long preferred GSE stock).
BUT
I have not seen the details just the rumors. If anyone has a current link to verifiable details….post it.
Contrary to popular belief, the preferred stock holders and even subordinated debt holders of Fannie and Freddie apparently will not be spared serious pain.
From Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aA419ISkTYD4&refer=home
The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview after being briefed by Paulson. The government would make periodic injections of funds by buying convertible preferred shares or warrants in the companies as needed, avoiding large up- front taxpayer costs, according to a person briefed on the plan.
“This is no bailout, particularly for the shareholders,” Frank said. The federal government “will be senior to all shareholders, preferred and common.”
Holders of the companies’ corporate debt and preferred shares are “very unlikely to come out of this at all happy,” and the chief executive officers will be forced out, Frank said.
Keep the popcorn popping,
Red Baron
Ive been thinking about the “Why Now?”
My first inclination goes back to the Dealbreaker “trade of the day” you know the one hoz, when the treasury auctions, as well as, Fanny and Freddy debts were all rolling in the same week. The trade dynamic was some sort of organized way to get the GSE debts explicity backed by treasury… and here we are. They must know that the music is stopping, but everyone wants to keep dancing.
My second inclination is the Chinese explicity threatening Washington about this matter some weeks ago.
The ideological conclusion regarding the ability of the goverment to place American Assets at risk (this is OUR collective capital) in order to salvage the system is straightforward: do not do anything and ships keep sinking.
The preffered are the backbone of the banking system. I strongly suspect at this juncture the preferred are safe, if for only self preservation of the system. Break the preffered, and you risk systemic damage. Break the Chinese and you risk global systemic damage. The Chinese markets are teetering on the brink, down something like 60% plus.
This is music to dance to.
fingers crossed,
xxx
ooo
xxx
everbody try and play nice.
No details till tomorrow. Gotta try to get a pop on the Asian markets…
“Fed data offer circumstantial evidence of, if not of a run, then of a steady walking away from Fannie and Freddie securities.”
Barron’s
Circumstantial my uncle Vinnie! They dumped 13.7B in July and refused to buy anymore. Explicitly threatening, not at all. Just laying out the facts, just the facts.
As to my buddies in China, many good stocks are up in the last month (about 40% of all listed). Ignore indices and look at the profits and debt structure of individual companies. And I will be buying some new ones that have recently dropped. These companies have 0 debt and are still making moneys at 20%+ per year growth rates. One stock I bought has 300MM in cash in the bank, no debt and real profit growth of 23%. The companies market cap is now 240MM. If I could buy the entire company and strip the cash I make good pfennig and own a profitable business. There are more weeds on Wall Street than China.
China will do whatever it has to do to create 5MM jobs per year. That is all that matters to the Chinese government.
Hoz and voz,
How will the bail out of Fannie and Freddie jolt the housing markets. The so called experts say this will provide the “jolt” needed for the housing market.
Hey Lisa,
You want to check out the big movers in the S&P 500 in the last session, after an early tank due to the employment numbers.
A cynic would think that at least part of “the stock market” got the news on Friday.
Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.
Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.
Screwedage Payment (n.): monthly payment on a mortgage for a house on which you owe more than the damned house is worth, but you can’t just walk away, and so you have to sit in it, night after night, thinking about how you can’t afford this damned house, and how it and these damned expensive kids are dragging you into the financial gutter, and what you really, really want to know is two things; one, who is responsible since nothing is ever your own fault, and two, who do you sue, or, alternatively, give those damned kids to?”
Thanks to the Mogambo Guru.
“I fight for Americans. I fight for you. I fight for Bill and Sue Nebe from Farmington Hills, Michigan, who lost their real estate investments in the bad housing market. Bill got a temporary job after he was out of work for seven months. Sue works three jobs to help pay the bills.” — John McCain
And who are Bill and Sue Nebe? They’re “Team Nebe” - a couple of real estate agents.
http://www.teamnebe.com/
The GOP - the party of real estate specuvestors.
Why should this be a surprise considering the housing BS was their very own creation?
Do they get to write off the interest on all of their property? Did they get option ARMs, HELOCs or liar loans? Did they quit their full time jobs in order to flip houses full time? Do they live in a mansion in Farmington Hills, or in a home more appropriate to their income?
Will McCain “fight” for them with bailout money?
Inquiring minds want to know!
McCain he used to be buddies with Charles Keating back in the day.
Yeah, that one had me convulsing when I heard it the other night. If he had said “fraud” and “lost their home” I might’ve given the benefit. No sympathy for these nebes.
n33bs: PWNED
Bears storm the last bastion.
http://www.nytimes.com/2008/09/07/realestate/07cover.html?ref=realestate
With new construction, looks like we’ll have some forced sales at market.
“In recent months, mortgage lenders, real estate brokers and financial counselors have noticed that more apartment owners in Manhattan are missing payments, putting their apartments up for sale to avoid losing them to foreclosure and seeking advice about keeping up with payments.”
“Court filings show that some of these apartment owners have well-paying jobs as lawyers, professors and bankers. Their Facebook pages feature them at parties with friends, and their LinkedIn bios list prestigious careers and educational credentials. And they live at tony addresses like the Atelier at 635 West 42nd Street, the Ansonia at 2109 Broadway, Worldwide Plaza at 350 West 50th Street and the Philippe Starck building at 15 Broad Street.”
The Ansonia? I know it is on the west side, not the east side, but isn’t the Ansonia one of the really fussy NYC buildings? One of the ones that required people to buy for cash and have liquid assets equal to the cost of the apartment after paying for it? I guess I mostly heard about rumors to that effect for places on 5th Avenue, but most high end NY buildings require financial qualifications so far beyond what a bank would require that it isn’t even in the same ball park. Is the Ansonia a condo, not a co-op? How weird…
I thought the plan was to wipe out the shareholders.
Takeover May Help Homebuyers, Hit Fan-Fred Shareholders
By JESSICA HOLZER
September 6, 2008 7:26 p.m.
WASHINGTON — Homebuyers and holders of Fannie Mae and Freddie Mac debt are the likely beneficiaries of a U.S. Treasury plan to takeover the beleaguered mortgage giants, but it is less clear how shareholders will fare.
A capital infusion by the Treasury could harm investors in the firms’ common and preferred stock in the near term, but may ultimately prove a boon to shareholders if the companies rebound, analysts said.
“If the companies are stabilized and the crisis passes, the stock will be worth a lot,” Peter Wallison, former general counsel to the Treasury and a frequent critic of the firms, argued.
Hey, wait a second. Weren’t we assured that it was only a “precautionary measure” and was only put in place “in the unlikely event” that liquidity is needed?
(yeah, yeah sarcasm off and…..don’t fight the fed and…..all those others I can’t seem to dig up during this unlikely event)
“If the companies are stabilized and the crisis passes, the stock will be worth a lot,”
..and then Peter Wallson thought to himself….
“but more likely, the companies won’t be stabilized and the crises will get worse and hence the stock will be worth squat but that will be taxpayers problem not mine”
I thought the GSE regulator was the OFHEO. What happened to them — did they just vanish over night?
Rescue plan near for Fannie and Freddie
By Saskia Scholtes in New York and James Politi in Washington
Published: September 5 2008 23:34 | Last updated: September 6 2008 22:33
The US Treasury is expected to announce as soon as Sunday a rescue plan for Fannie Mae and Freddie Mac, the two struggling government-sponsored mortgage groups whose fate is key to the future of the US housing industry and financial markets.
The plan could involve a government takeover of the two giant mortgage financiers by putting the two companies into the temporary conservatorship of their regulator, the Federal Housing Finance Agency, said people close to the talks.
Obama, McCain Back Treasury Action to Rescue Freddie, Fannie
By Kim Chipman and Edwin Chen
Sept. 6 (Bloomberg) — Presidential candidates Barack Obama and John McCain gave their support for federal action to rescue Freddie Mac and Fannie Mae while saying steps must be taken to ensure the mortgage giants don’t keep passing losses off to taxpayers.
“It looks like the Bush administration is going to intervene with a bailout that could end up costing taxpayers billions of dollars,” Obama, the Democratic nominee, said today while campaigning in Terre Haute, Indiana. “These entities are so big and they are so tied into the housing market that it’s probably true that we have to take steps to make sure that they don’t just collapse.”
“They have to open their wallet,” Gross said. About 61 percent of Gross’s holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or government agency Ginnie Mae, according to data on Pimco’s Web site. “
NOW I understand why Bill Gross is pimping so many interventionist, anti-capitalist initiatives.
Absolutely. Bill Gross knew about the housing bubble years ago. You’d think he would have been prepared for it, no?
Sounds as though PimpCo’s pimping paid off handsomely. I wonder how much GSE debt the taxpayer will end up purchasing directly from the likes of PimpCo and other smart playas?
How did the GSEs overstate their capital cushions? Let me count the ways. I am guessing these various shoddy accounting practices will add up to a “larger than expected” bailout charge to U.S. taxpayers.
Loan Giant Overstated the Size of Its Capital Base
By GRETCHEN MORGENSON and CHARLES DUHIGG
Published: September 6, 2008
…
Investors who own the companies’ common and preferred stock will suffer. Holders of debt, including many foreign central banks, are expected to receive government backing. Top executives of both companies will be pushed out, according to those briefed on the plan.
The cost of the government’s intervention could rise into tens of billions of dollars and will probably be among the most expensive rescues ever financed by taxpayers.
…
Under the plan, the Treasury Department itself will begin buying mortgage securities, providing crucial market support.
…
But the plan will probably do little to stop home prices from falling further. And foreclosures are almost certain to rise.
…
The accounting issues that brought so much urgency to the bailout appear to center on Freddie Mac’s capital cushion, the assets that regulators require them to keep on hand to cover losses.
The methods used to bolster that cushion have caused serious concerns among the companies’ regulator, outside auditors and some investors. (1) For example, while Freddie Mac’s portfolio contains many securities backed by subprime loans, made to the riskiest borrowers, and alt-A loans, one step up on the risk ladder, the company has not written down the value of many of those loans to reflect current market prices.
Executives have said that they intend to hold the loans to maturity, meaning they will be worth more, and they need not write down their value. But other financial institutions have written down similar securities, to comply with “mark-to-market” accounting rules. Freddie Mac holds roughly twice as many of those securities as Fannie Mae.
(2) Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits accumulated over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit.
But such credits have no value unless the companies generate profits. They have failed to do so over the last four quarters and seem increasingly unlikely to the next year. Moreover, even when the companies had soaring profits, such credits often could not be used. That is because the companies were already able to offset taxes with other credits for affordable housing.
Most financial institutions are not allowed to count such credits as assets. The credits cannot be sold and would disappear in a receivership. Removing those credits from assets would probably push both companies’ capital below the regulatory requirements.
(3) Regulators are also said to be scrutinizing whether the companies were trying to manage earnings by waiting to add to their reserves. Both companies have gradually increased their reserves for loan losses — Fannie’s reserves today stand at $8.9 billion, and Freddie’s at $5.8 billion.
Other companies, like private mortgage insurers, have been quicker to identify large losses and have set aside much greater amounts. Fannie and Freddie have dribbled out bad news with each quarterly announcement, suggesting they may be trying to manage this process.
(4) Finally, regulators are concerned that the companies may have mischaracterized their financial health by relaxing their accounting policies on losses, according to people familiar with the review. For years, both companies have effectively recognized losses whenever payments on a loan are 90 days past due. But, in recent months, the companies said they would wait until payments were two years late. As a result, tens of thousands of loans have not been marked down in value.
Hehehe, this is pretty sweet, I’m seeing 50% off deals here in So. Cal. and prices keep falling. Of course, we appear to be entering the next Great Depression, but I digress…
Alas, not yet where I want to buy! (oh… 25% off… the best is yet to come). I still to not see another Great Depression. Heck, I’m seeing some indicators that show we could be ok by 2010.
Not housing… but jobs.
Eventually the MSM will pick up that house prices, like rents, must be correlated to incomes. With so many FB’s fleeing home to live with mommy and daddy… we’ll see quite the undershoot.
While I do not have the numbers to prove it… it just feels like we’ve entered the 18 months of the fastest declines. Have we? Or am I anticipating? Good thing I’m not going to blog the real estate emotions again until the end of this month.
Got Popcorn?
Neil
“We have just had to nationalize the two largest financial institutions in the world because of policy makers’ inaction,” said Josh Rosner, an analyst at Graham Fisher, an independent research firm in New York, and a longtime critic of the government-sponsored enterprises. “Since 2003, when these companies’ accounting came under question, policy makers have done nothing.”
Who has the list of which policy makers who could have done something to fix the problem did nothing instead?
I would start with 100 senators, 435 congressmen, one president and nine Supreme Court justices - 545 human beings out of the 300 million - are directly, legally, morally and individually responsible for the domestic problems that plague this country.
Our problems are deep-rooted and cutting down the tall trees to better see the future, may not be a bad idea, but make sure you get the stumps as well, so we can plant new ideas without dead routes getting in our way.
We spend $60 million every two years for OFHEO. Roll some staffers heads there too. (The floggings should continue until morale improves.)
you need to add in all the people who knowingly bought houses they couldn’t possible afford. They directly took money out of your bank account. And unless they’re punished, it’ll never occur to them that the did anything wrong.
Sadly, they’re being propped up as deserving victims.
How is the bailout plan looking for preferred GSE share owners?
Fannie and Freddie threat to banks
By Saskia Scholtes in New York and James Politi in,Washington
Published: August 23 2008 03:00 | Last updated: August 23 2008 03:00
Small regional US banks could face substantial writedowns if the government has to rescue Fannie Mae and Freddie Mac, the two giant US mortgage financiers.
Regional banks, together with US insurers, hold the majority of Fannie and Freddie’s $36bn of outstanding preferred stock, which could be wiped out in the event of a government rescue.
GRRRrrrrrrrr!!!
Investors take cover as bears gain upper hand
By David Oakley and Michael Mackenzie
Published: September 6 2008 03:00 | Last updated: September 6 2008 03:00
Financial markets were rocked this week from mounting worries about the global economy, increasing concerns over the health of the banks and a further fall in commodity prices.
As investors closed out a bruising week, talk emerged late yesterday that the US Treasury was in the process of finalising a deal to shore up Fannie Mae and Freddie Mac, the two mortgage giants. This week equities were hit across the board, but Wall Street rebounded from early losses and closed a little firmer yesterday.
The govt is on the brink of taking over two companies with $5,300,000,000,000 in debt. How plausible is it that the bailout charge to Uncle Sam will be “contained” to $25,000,000,000?
BTW, as a percentage of $5.3T, $25b amounts to
(25,000,000,000/5,300,000,000,000)*100 = 0.47% (i.e. less than 1%)
Mortgage Giants Agreeable to Rescue Plan, but Its Cost Is Unknown
By EDMUND L. ANDREWS and STEPHEN LABATON
Published: September 6, 2008
WASHINGTON — Fannie Mae and Freddie Mac agreed on Saturday afternoon to the Bush administration’s plan to rescue them, people briefed on the plan said. Under the plan, the Treasury Department will buy billions of dollars in new mortgage securities issued by the companies and inject an unknown amount of capital into them in quarterly installments, according to these people.
On Sunday, the government plans to announce that it will take control of the mortgage finance giants, remove the top executives and their boards, and appoint a conservator to begin to nurse them back to health. Senior government officials including Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke, and James Lockhart, the top regulator for the companies, informed their top executives about the plan in meetings on Friday and Saturday.
The moves by the Bush administration hold the prospect of becoming the biggest government-funded bailout of private industry in American history. They would put the federal government in control of institutions that finance or guarantee about half of all the mortgages in the country.
The administration is not expected to say how much the bailout ultimately will cost, in part because it does not know how much the Treasury will be able to ultimately sell the assets for. It could be politically uncomfortable to put a price tag on a huge bailout, only two months before the presidential election. The Congressional Budget Office said two months ago that it was impossible to say how much a bailout would cost, but estimated $25 billion based on the companies’ projected losses at the time.
I hope everyone who ignored or even ridiculed the warnings offered by myriad posters here all the way back to 2005 enjoys a delicious baked crow dinner tomorrow evening in honor of the takeover of the GSEs by the Fedsury.
Fannie Mae, Freddie Mac blind to bubble
By ALAN ZIBEL
The Associated Press
WASHINGTON | Mortgage giants Fannie Mae and Freddie Mac — despite their collection of economists and mortgage experts — failed to heed warnings that the most dramatic housing bubble in U.S. history would burst.
The companies, particularly Freddie Mac, didn’t raise enough cash to reassure Wall Street that they would be able to withstand a severe downturn in U.S. home prices.
As their losses started rising at alarming rates, investors — particularly foreign investors — simply lost confidence that the companies’ debts would be repaid. It all but forced the government’s historic takeover of the mortgage giants, which own or back $5.3 trillion in mortgages.
“We have to protect taxpayers and not bail out the shareholders and management,” Obama said. McCain also said it should not be a “bailout of Wall Street speculators and irresponsible executives.”
http://biz.yahoo.com/rb/080906/fannie_freddie.html?.v=4
So McCain is against the F&F rescue ? No bailout for Wall Street (housing market) speculators and irresponsible (toxic loan creating) executives ?
This article cuts to the heart of the reason that the news of 25 pct YOY declines on the Case-Shiller/S&P home price index for San Francisco, LA and San Diego, not to mention the 40 pct decline in the median used home price for CA between July 2007 and July 2008, are so devastating. I suspect many keys will get chucked into envelopes and sent to banks over the next couple of years.
Pick-a-payment loans turn poisonous
Defaults on option ARM mortgages are expected to double in the next two years, driving foreclosure rates even higher.
By Les Christie, CNNMoney.com staff writer
September 3, 2008: 11:40 AM EDT
…
And, although option ARMs make up only a little more than 2% of all mortgages outstanding, they were concentrated in some of the most over-heated housing markets, which are now suffering heavy price losses.
With property values dropping 20% or 30%, many of these homeowners will be severely “upside-down” on their mortgages, owing much more than their homes are worth. Borrowers could find themselves owing $500,000 on houses worth only $300,000.
Refinancing such option ARM loans into fixed rate mortgages would be very difficult. Lenders won’t issue a mortgage for more than the appraised value of a property, so someone with a $500,000 loan on a $300,000 house would have to pony up more than $200,000. If they can’t they could lose their homes.
Even homeowners who could afford to continue to make the increased payments may decide that continuing to do so makes little financial sense, and just walk away from their mortgages.
“Your payment is going to go up exponentially,” said Gumbinger, “and your ability to pay will not. You just might chuck your keys in an envelope and mail it to your bank.”
With California prices off by 25 pct or more from the peak, what is the chance the GSE liabilities do not exceed their assets by a fair margin?
Rescue cost: The big unknown
A government takeover of Fannie Mae and Freddie Mac can take many forms, and so could the cost to the U.S. Treasury.
By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: September 6, 2008: 7:01 PM EDT
…
But should the companies’ liabilities ever exceed their assets, it is likely the government would make good on its implicit guarantee to back their debt, said attorney Thomas Stanton, author of two books on Fannie and Freddie and a lecturer at Johns Hopkins University.
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in an interview Saturday that the companies’ financial picture was better than investors assumed, but “it just plainly became clear that elements of the market wouldn’t accept that.”
http://biz.yahoo.com/ap/080906/mortgage_giants_what_went_wrong.html
He ignores the basics of economics: The market is always right.
Doesn’t Zandi have it backwards? I.e., isn’t Treasury debt now like GSE debt, implying l-t T-bond yields should go up starting tomorrow, thanks to explicitly loading Uncle Sam’s balance sheet with another $5.3T in mortgage debt of uncertain quality and quantity?
So far as lifting a cloud of doubt, aren’t there lingering doubts about how underwater are all the assets Uncle Sam is assuming? How does executing a transfer of liabilities that markets have anticipated for weeks already change the picture?
Capital crunch has loan titans in crisis
Treasury to intervene, rescue Freddie, Fannie
THE WASHINGTON POST AND MCT NEWS SERVICE
September 7, 2008
…
“It should bring mortgage rates down, because Fannie and Freddie are now (after the takeover) like Treasury debt,” said Mark Zandi, chief economist for Moody’s Economy.com.
Rates on a 30-year fixed mortgage could come down to between 5.25 percent and 5.50 percent, Zandi said, and world financial markets should respond favorably tomorrow.
“Fannie and Freddie were a significant cloud over the market that presumably has been lifted,” he said. “I think investors should respond positively.”
FanFred & Sum prayer vigil @ 11 e.s.t. today, starring the reverent Paulsonocchio…
Part of the new Ecuador Constitution (up for general vote Sep 28)\
Aladinsane and others will enjoy this:
” Chapter: Rights for Nature
Art. 1. Nature or Pachamama, where life is reproduced and exists, has the right to exist, persist, maintain and regenerate its vital cycles, structure, functions and its processes in evolution.
Every person, people, community or nationality, will be able to demand the recognitions of rights for nature before the public organisms. The application and interpretation of these rights will follow the related principles established in the Constitution.
Art. 2. Nature has the right to an integral restoration. This integral restoration is independent of the obligation on natural and juridical persons or the State to indemnify the people and the collectives that depend on the natural systems.
In the cases of severe or permanent environmental impact, including the ones caused by the exploitation on non renewable natural resources, the State will establish the most efficient mechanisms for the restoration, and will adopt the adequate measures to eliminate or mitigate the harmful environmental consequences.
Art. 3. The State will motivate natural and juridical persons as well as collectives to protect nature; it will promote respect towards all the elements that form an ecosystem.
Art. 4. The State will apply precaution and restriction measures in all the activities that can lead to the extinction of species, the destruction of the ecosystems or the permanent alteration of the natural cycles.
The introduction of organisms and organic and inorganic material that can alter in a definitive way the national genetic patrimony is prohibited.
Art. 5. The persons, people, communities and nationalities will have the right to benefit from the environment and form natural wealth that will allow wellbeing.
The environmental services are cannot be appropriated; its production, provision, use and exploitation, will be regulated by the State.”
editorial in LA Times
“… No other country has gone as far as Ecuador in proposing to give trees their day in court, but it certainly is not alone in its recalibration of natural rights. Religious leaders, including the Archbishop of Canterbury, the Dalai Lama and the Archbishop of Constantinople, have declared that caring for the environment is a spiritual duty. And earlier this year, the Catholic Church updated its list of deadly sins to include polluting the environment.
Ecuador is codifying this shift in sensibility. In some ways, this makes sense for a country whose cultural identity is almost indistinguishable from its regional geography - the Galapagos, the Amazon, the Sierra. How this new area of constitutional law will work, however, is another question. We aren’t ready to endorse such a step at home, or even abroad. But it’s intriguing. We’ll be watching Ecuador’s example…”
To you, Oh Mighty Ben, who hast educated my so much by thy efforts, I send cash sustenance. As I struggle mightily to raise further cash against the oncoming financial storm by selling such useless items as my husband’s brother’s Dobson telescope and 1991 Enterprise Christmas ornament ( mint in box ) on Craigslist, I think of thee and the wise assembly of mighty minds assembled here ( well, when they’re not drinking too much, anyway ), and appreciate thy efforts as I buy some silver rounds this weekend. As circumstances warrant, I shall contribute more. And consider this, oh Ben, I diverted part of my contribution to the political party of my choice unto thee, and may not contribute as planned to said party, but all of it unto thee instead. A rock shall bloom in the desert, and all that.
Anyway, thanks.
Ode to Long Term Capital
Ten years ago, on a cold dark night, A hedge fund was killed in the Fed’s meeting light.
There were few at the scene, but they all agreed that the hedge fund that folded looked fine to me.
The Fed said, is that all your liability? If you’re hiding something else, then you won’t have to die.
I spoke not a word, cuz I was set for life, for I’d transferred funds to my Cayman’s Account for life.
The Fed paints the books in long black ink, visits my grave when the equity stinks.
Nobody knows, nobody sees, nobody knows but me.
Oh, the market is high and the collapse near, mopes are buying without any fear.
But late at night, while equity grows, in long black ink, the Fed paints the CDOs.
The Fed paints the books in long black ink, visits my grave when the equity stinks.
Nobody knows, nobody sees, nobody knows but me.
Beautifully veiled…
Barack H. Obama repeated yesterday that he’s opposed to affordable housing
According to the NYTimes, he said:
Both presidential nominees expressed support for the government’s plans. Senator Barack Obama, Democrat of Illinois, said as he campaigned in Indiana that not acting could place the housing market in further distress.
http://www.nytimes.com/2008/09/07/business/07fannie.html?_r=1&hp&oref=slogin
It’s disgusting that some guy who claims to stand up for 80% of America (the 80% that doesn’t make “too much money”) wants to keep house prices high.
Anybody see this?
“With real estate values plummeting and foreclosed homes sitting empty, a family of bobcats apparently decided the time was right to pounce.
So last week, they slipped out of the parched foothills of Lake Elsinore and into a spacious, vacant home in well-groomed Tuscany Hills.”
http://www.latimes.com/news/local/la-me-bobcats5-2008sep05,0,2286826.story
Ode to Chuck Berry…
I’m gonna write a little blog story
Gonna e-mail it over the airwaves
It’s about a rocky financial record
I want my Treasury Secretary to play.
Roll Over Fannie & Freddie, I gotta hear it again today.
You know, my temperature’s risin’
And the market’s about to blow a fuse.
My portfolio’s beaten within
and my soul keeps on singin’ the blues.
Roll Over (and play dead) America and Bloomberg tells us the news.
I got the gambling pneumonia,
I need a shot of absinthe and blues.
I think I’m rolling 7’s, line out
Sittin’ down by the rhythm review.
Roll Over Fannie & Freddie rockin’ in two by two.
Well, if you feel you like it
Go get your loan, then reel and rock it.
Roll it over and move on up just
A trifle further and reel and rock it,
Roll it over,
Roll Over Humpty Dumpty rockin’ in two by two.
In other new:
China to foreclose United States. We have 30 days to evict.
Can we get that to-go?