The Housing Bubble

is it already tomorrow?

Happy Easter! Too early for coffee just yet…

I moved into this neighborhood 3 1/2 years ago. There was a house for sale down the street on the corner. It is still for sale with a new price.

Oh goody!

Roidy

Happy Oester, Thor!

* Business
* Hedge funds

Tepper pips Paulson to hedge fund peak

Former Goldman Sachs trader David Tepper made £2.5bn last year after betting on the US and Britain bailing out banks

* Richard Wachman
* guardian dot co dot uk, Friday 2 April 2010 15.46 BST
* Article history

USA - Business - Appaloosa Management Hedge Fund’s Tepper

David Tepper, who left Goldman Sachs to found Appaloosa Management, piled into banking stocks just before they were rescued in 2008. Photograph: Najlah Feanny/Corbis

A man who keeps a sculpture of a pair of testicles in his office, which he rubs for luck, has emerged as the world’s richest hedge fund manager, pocketing £2.5bn in 2009 after betting that the US and British governments would not let banks fail.

David Tepper, a 52-year-old former Goldman Sachs junk-bond trader, invested in banks such as Royal Bank of Scotland at the bottom of the market and then watched the shares recover sharply following taxpayer bailouts in 2008.

Tepper, founder of Appaloosa Management, is believed to have earned more than any other hedge fund manager in a single year, surpassing the $3.7bn collected by John Paulson, who took positions against the overvalued US housing market in 2007.

The son of an accountant in Pittsburgh, Tepper was named as the best-paid hedge fund specialist last year by Absolute Return magazine, beating George Soros, who famously bet against the pound in 1992 and helped to force Britain out of the European exchange rate mechanism.

Just as it looked as though the British government would step in and nationalise Lloyds and RBS, Appaloosa invested more than £625m in their shares, which rose sixfold during the course of last year.

Tepper piled into US banks, too, investing millions in Bank of America when the shares were worth $3 – they closed on Thursday at about $18. He also built up stakes in Citigroup, Wells Fargo and Fifth Third Bancorp. According to filings with the US securities and exchange commission, Appaloosa at one point had 46% of its equity holdings in financial companies.
…

Our Present Situation: Eight Haiku

By Robert Higgs,

Cherry blossoms in

Washington bathe frightful deeds

in springtime beauty.

–

Firms too big to fail

savor scent of roses from

Treasury’s garden.

–

No systemic risk

too dark a cloud for Congress

to make darker still.

–

Government jobs cause

illusion of revival –

mirage in desert.

–

Big banks take their ease

in fields of new-sown clover.

Fine friends ease worries.

–

Dear Leader’s voice like

thunder in hot afternoon.

Storm comes very soon.

–

Bernanke stays calm.

He has proper “tools” to curb

deluge we now dread.

–

River flows smoothly

toward renewed opulence;

then the cataract

Sleepless in the Far East, having just flew in from NY JFK early this morning, though I quickly check on what is the latest on RE news and found this interesting WaPo article:

How Texas escaped the real estate crisis

By Alyssa Katz
Sunday, April 4, 2010; G02

It’s one of the great mysteries of the mortgage crisis: Why did Texas — Texas, of all places! — escape the real estate bust? Only a dozen states have lower mortgage foreclosure and default rates, and all of them are rural places such as Montana and South Dakota, where they couldn’t have a real estate boom if they tried.

Texas’s 3.1 million mortgage borrowers are a breed of their own among big states with big cities. Fewer than 6 percent of them are in or near foreclosure, according to the Mortgage Bankers Association; the national average is nearly 10 percent. The land in Texas might look an awful lot like its Sun Belt sisters Arizona (with 13 percent of its borrowers in foreclosure) or Nevada (19 percent) — flat and generous in letting real estate developers sprawl where they will. Texas was even the home base of two of the nation’s biggest bubble-era homebuilders, Centex and D.R. Horton.

Texan subprime borrowers do especially well compared with their counterparts elsewhere. The foreclosure rate among subprime borrowers in Texas, at less than 19 percent, is the lowest of any state except Alaska. Part of the reason is that Texas didn’t experience the stratospheric run-ups in home prices that other states did. On average, the home-resale prices of the 20 metro areas in the Case-Shiller Home Price Index peaked in 2006 after more than doubling since 2000. In Dallas, one of the 20 areas, they rose just 25 percent, gradually, and have barely declined.

I didn’t see this editorial posted here before. It’s by a former hedge fund guy who said he saw the whole train wreck coming and was blown off by Alan Greenspan.

ALAN GREENSPAN, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”

But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy.

This guy put his money where his mouth was, and yet was opposed by his own investors.

Another awesome story by Matt Taibbi in Rolling Stone. How Wall Street is looting Main Street. Jeebus, these municipalities should just repudiate the debt.

http://www.rollingstone.com/politics/story/32906678/looting_main_street/print

Biggest risk might lie with largest banks

Biotech headlines
By Jeff Ostrowski
Palm Beach Post Staff Writer
Posted: 8:28 p.m. Friday, March 26, 2010

In the aftermath of the Great Recession, banks have clamped down on lending, and the most reckless institutions have failed.

But is the banking sector really any safer? Some argue that the biggest banks have grown only riskier. These institutions survived the credit crunch, absorbed the failures and consolidated their hold over the staid business of retail banking and the more glamorous endeavor of investment banking.

In his new book 13 Bankers, MIT Professor Simon Johnson contends that six huge banks — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — have grown too large and should be broken up.

“The big banks are going to become bigger and more dangerous,” Johnson said. “They can’t help themselves. In fact, that’s their job.”

In Palm Beach County, the nation’s four largest banks — Bank of America,

JPMorgan Chase, Citigroup and Wells Fargo — hold nearly half of all deposits. None seem particularly risky at the moment; all four received safety ratings of “adequate” or better in BauerFinancial’s fourth-quarter report card on banks.

Indeed, depositors have little to worry about. The Federal Deposit Insurance Corp. notes that no one has ever lost a penny of FDIC-insured deposits since the coverage began in the 1930s, and the recent spate of bank failures hasn’t derailed that track record.

It’s not depositors who bore the brunt of the banking crisis, at least not directly. Instead, investors, taxpayers and homeowners have paid the price for the financial collapse of 2007 through 2009, and they’ll be the victims of the next downturn, Johnson said.

“Like the last crisis, the next one will cause millions of people to lose their jobs, houses or educational opportunities,” Johnson and co-author James Kwak write in 13 Bankers. “It will require a large transfer of wealth from taxpayers to the financial sector; and it will increase government debt, requiring higher taxes in the future.”

Hoping to avoid a repeat of the recent crash, regulators aim to rein in big banks.

“If the Congress accomplishes anything this year, it should be to clearly and completely end ‘too big to fail,’ ” FDIC Chairwoman Sheila Bair said at a recent conference in Orlando.

Some are encouraging consumers to punish big banks by taking their money elsewhere. Arianna Huffington, editor of The Huffington Post, in December launched Move Your Money to urge Americans to do business with small banks and credit unions.

It’s unclear whether that effort has affected the banking industry. 1st United Bank of Boca Raton, one of a handful of South Florida banks recommended by the Move Your Money Web site, has seen deposits increase, Chief Executive Rudy Schupp said. However, he’s unsure whether he can credit Move Your Money for the influx.

The heads of three other community banks — Grand Bank & Trust of Florida in West Palm Beach, Palm Beach Community Bank in Boynton Beach and Gulfstream Business Bank in Stuart — said they’ve seen no influx of deposits. And a spokeswoman for Bank of America said that institution has seen no exodus of deposits.

Dennis Santiago, the head of Institutional Risk Analytics in Torrance, Calif., runs the Move Your Money site, and he acknowledges that it’s impractical for most consumers to simply close all their accounts at a megabank. He suggests that customers of the big banks should open a second account at a smaller bank.

“You have to make a statement somewhere,” Santiago said. “One of the easiest ways is to open an account at an alternative bank.”

Meanwhile, the quarterly bank ratings from BauerFinancial of Coral Gables showed a few noteworthy changes. Struggling Seacoast National Bank of Stuart saw its rating rise in the fourth quarter to two stars, or problematic, from one star, or troubled, in the third quarter. Seacoast suffered an annual loss of $143 million, but its capital ratios edged up slightly from the third quarter to the fourth quarter.

Healthy 1st United Bank of Boca Raton rose to four stars, or excellent, from three and a half stars, or good.

Four banks fell to two from three stars: Anchor Commercial Bank of Juno Beach, Enterprise National Bank of North Palm Beach, Flagler Bank of West Palm Beach and Paradise Bank of Boca Raton.

Great Depression deju vu - Have you all noticed the turning the corner govt. propaganda lately? That cautiously optimistic BS about consumer spending, job creation, housing? Reminds me of the early 1930’s.

MSM discussions of U.S. housing subsidies invariably focus on whether a given program is “working” or not, in the sense of whether the uptake is high, never bothering to address the general folly of further subsidizing the bloated and busted housing sector to begin with.

Repeat-buyer tax credit lacks buzz
By Kenneth R. Harney / The Nation’s Housing
Sunday, April 4, 2010
…
The repeat buyer credit was added to last fall’s economic stimulus tax legislation and signed into law Nov. 6. It offered what some critics saw as free money - up to a $6,500 check from the federal government for simply purchasing a replacement residence that you had intended to buy anyway. To qualify, however, purchasers must have lived in and owned their house for a consecutive five of the preceding eight years, and meet income and home price criteria.

The tight timetable, plus the relatively small amount of the credit compared with the costs of transactions, may have dampened interest in the repeat buyer credit from the start. Leslie Tyler, vice president of marketing for Zip Realty, a brokerage based in Emeryville, Calif., and active in 35 metropolitan areas around the country, said the cost-benefit equation has never been favorable for most potential users.

“It’s not a big motivator” for several reasons, she said in an interview. First, in high cost and moderate-cost markets alike, the prospect of receiving $6,500 from the government is not likely to convince many longtime owners to suddenly go out home shopping.

Second, for underwater homeowners - whose loan balances exceed their home’s sales value - moving up or out may not be an option. Still others find that the sale price they are likely to receive may be discouraging - and they prefer to wait for a more propitious time to sell, when prices have bounced back more. The costs of fixing up a house for listing, the time required to locate a replacement - on top of the tight six-month window to complete deals set by Congress - all have tended to work against the $6,500 credit as a stimulus measure, Tyler believes.

On the other hand, brokers and builders say the $8,000 tax credit appears to be motivating growing numbers of first-time buyers to sign up by the April 30 deadline.Homebuilder Dean Mon of the DR Mon Group in Shrewsbury, N.J., said he has sold 60 houses in the $180,000 to $190,000 range in one project in recent months - and the majority of purchasers are at least partially motivated by the $8,000 credit. “If it weren’t for the credit,” he said, “they couldn’t even buy the home.”

Ed Brady of Brady Homes in Bloomington, Ill., said he has seen a “significant pickup in the last 30 days” and could sell as many as 90 homes to first-time buyers who can close by the June 30 deadline.
…

According to The Economist, U.S. taxpayers are on the hook for 10 to 21 cents of each mortgage writedown under the newfangled HAMP.
21 “cents” on a $500,000 principle balance is $105,000 — nice deal for the FB and the lender!

Underwater borrowers in America
A splash of good news?
The government tries a new tack in the fight against mortgage foreclosures

Mar 31st 2010 | NEW YORK | From The Economist print edition

WITH America braced for 4m or more foreclosures this year, the government is still searching for an effective way to stop the rot in housing. Under the Home Affordable Mortgage Programme (HAMP), a mere 170,000 borrowers have received permanent loan modifications, well below the target of 3m-4m. Will a revamped HAMP, unveiled on March 26th, mark a turning-point?

Until now the focus has been on lowering mortgage payments as a share of income, mainly through interest-rate reductions and term extensions. New rules put an emphasis on reducing principal (ie, loan balances). A crisis first sparked by subprime-mortgage defaults has since spread to better-heeled borrowers: one in four American households with mortgages owe more than their properties are worth. Forgiving some of this debt makes it less likely that they will throw away the keys.

The new plan aims to help in four main ways. It offers incentives for loan servicers (which collect payments for investors in mortgage-backed securities) to reduce principal for those owing more than 115% of the property’s current value; the write-down will be staged over three years if the borrower keeps up with lower payments. Second, struggling borrowers who have kept up their payments can switch into loans guaranteed by the Federal Housing Administration (FHA), a government agency, as long as their loan is reduced by 10% or more. Third, jobless borrowers will get up to six months of payment assistance while they look for work.

The final element is perhaps the most important. The government hopes to remove a blockage in the modification process with a bribe to holders of “second lien” mortgages, such as home-equity loans. CreditSights, a research firm, estimates that the four big banks hold $423 billion of home-equity loans (see chart), $151 billion of them to borrowers who are either underwater or close to it. These lenders have resisted modification of first mortgages, fearing knock-on write-downs of their second liens. The sweetener on offer is a payment of between ten and 21 cents on the dollar for balances they cut.
…

Alright, I’m off to church to worship Lloyd Blankfein.

If anyone has some time on their hands, Realtor dot com has a Home Affordability calculator that calculates what you can afford at 28% of income. It’ll take debt, downpayment and interest rates into consideration.

Real eye opener with interest rates due to rise.

Originally went to the site after a neighbor in my apartment complex left me a flyer on a cute little one bedroom house in Silver Lake (LA area) for $569,000. Calculated true cost of owership at $4,600 per month after a 20% downpayment.

And, the city of Los Angeles is spending 1 million dollars more than they’re taking in these days.

Think I’ll take a pass.

* The Wall Street Journal
* HEARD ON THE STREET
* MARCH 31, 2010

Insuring Against an End to Moral Hazard

By DAVID REILLY

The bailout bus keeps rolling. Last week’s programs to forgive mortgage principal were good news for mortgage insurers. But PMI Group’s share-price surge had an extra lift from Freddie Mac.

The mortgage giant gave a new PMI subsidiary the green light to write insurance for loans that Freddie guarantees. PMI needed the blessing—and got a similar one from Fannie Mae—because its main subsidiary may be banned in some states from writing policies if it breaches regulatory capital rules.

If that happened, PMI’s future would be in even greater doubt. The company lost nearly $1.6 billion over the past two years and warned that “as a result of continued losses, we will need to raise significant additional capital and/or achieve significant statutory regulatory relief.”

What is curious is that Freddie’s and Fannie’s support potentially puts taxpayer dollars at risk, while helping PMI shareholders—the company’s stock jumped more than 40% last week. The moves also come as debate continues over how much skin in the game homeowners should have.

Help for PMI, and for Mortgage Guaranty Insurance Corp. last month, is also notable because Freddie has suggested that firms like this mightn’t be able to meet future claims.

Freddie in its annual filing said “some of our mortgage insurers lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as they emerge.” PMI has the lowest credit rating of Freddie’s rated mortgage-insurance counterparties.

With the government, through Fannie and Freddie, willing to play such games to keep small fry like PMI and MGIC alive, it shows quite how far away Uncle Sam is from a real solution on “too big to fail.”

I thought the housing recovery was in full swing. Was this article meant as some kind of cruel April Fool’s joke?

Phoenix Mortgage Pro Speaks! “I Don’t See Any Recovery At All” (FNM, FRE)

Joe Weisenthal, provided by BUSINESS INSIDER
Thursday, April 1, 2010
Phoenix

Following our mini-exploration of NYC Fannie (FNM) and Freddie F(RE), we thought it wise to get some perspective from the opposite side of the continent.

So we talked to a longtime vet of the real estate industry in Phoenix, AZ, one of many places that’s at one point or another been described as a “ground zero” of the housing bust.

As for the housing recovery he says: “I don’t see any recovery. At all.”

Why?

Like the NYC folks to whom we talked, he expressed frustration with Fannie and Freddie, along with Obama, and the Wall Street banks.

Here’s a bit of what we learned:

* Fannie and Freddie’s rules have been very tight, but the institutional rules put in place by the banks have also made things tough.

* Canadians — who used to play a role in boosting the housing markets of warm weather cities — can no longer get a loan in America. They HAVE to pay cash. Even a 50% down payment isn’t enough.

* Investors can’t get loans if they own more than 10 properties. That’s even if they’re loaded and have great credit

* The only activity right now are bank-owned properties and short sales.

* The homebuilders are dead in the water.

* The tax credit was a total waste.

Here is an example of a listing from our area; it is a very close comp to the home we rent.

Since I know our home sold at the bubble peak (late 2004) for $540,000, why would I or anyone else in their right mind consider buying a similar home for only $30,000 less in the post-bubble collapse era?

For Sale (MLS-listed)
$510,000
Beds: 4
Baths: 2
Sq. Ft.: 1,898
$/Sq. Ft.: $269
Lot Size: -
Property Type: Residential, Detached
Stories: 2
Year Built: 1980
County: San Diego

Status: Active This listing is for sale and the sellers are accepting offers.
On Redfin: 93 days

China is importing coal! Economically, politically, militarily and environmentally a disaster waiting to happen.
http://www.nytimes.com/2010/04/05/science/earth/05reef.html?hp

This guy would have my vote if I lived in the UK.

Let’s see if the U.S. pols can come up with a financial regulatory proposal to up the ante…

The Financial Times
Brown hails move on global bank tax

By George Parker in London

Published: April 4 2010 22:01 | Last updated: April 4 2010 22:01

Gordon Brown on Sunday said the large economies were close to agreeing a global tax on banks that would cost the financial sector billions of pounds a year but played down expectations that a deal could be struck at the next Group of 20 meeting in June.

The UK prime minister, who held talks with Angela Merkel, German chancellor, last week, said the scene was set for a ­“global responsibility levy”.

He said Britain, France and Germany were now broadly agreed on the need for a levy, and he hoped the US would come on board.

“Britain, France and Germany have talked about what we can do together,” he said. “We are agreed on the need for a common basis.”

Last week, France and Germany jointly backed an internationally co-ordinated levy.

Mr Brown told the Financial Times he wanted to reignite the spirit of global co-operation, which had faltered in the year since last April’s G20 summit in London.

Although a British election is expected in little more than a month, Mr Brown is engaged in frenetic international diplomacy to broker a global settlement for banks. “The relationship between banks and society has to change,” he said.
…
EDITOR’S CHOICE
John Plender: Errors of judgment - Apr-04
Discord persists over bank global tax - Mar-31
Berlin and Paris eye levy to fund bail-outs - Mar-31
Lloyds data outmuscles tough love message - Mar-24
Germany to introduce levy for bank bail-outs - Mar-22
Tory levy risks City  jobs, says Darling - Mar-21

The Financial Times
Berlin and Paris eye levy to fund bail-outs
By Gerrit Wiesmann in Berlin and James Wilson in Frankfurt
Published: March 31 2010 16:09 | Last updated: March 31 2010 16:09

Germany and France on Wednesday called for an international bank levy as Wolfgang Schäuble, German finance minister, outlined plans to force his country’s banks to pay €1.2bn into an insurance fund to cover bail-outs in a future crisis.

After a German cabinet meeting attended by Christine Lagarde, French finance minister, Mr Schäuble and his French counterpart called the initiative “a very useful contribution to the international debate” about financial regulation.

The unprecedented participation of a minister from a foreign country in the German government’s top body followed February’s decision by Angela Merkel, chancellor, and Nicolas Sarkozy, French president, to get the governments to liaise more closely.
…

The Financial Times
Discord persists over bank global tax
By Chris Giles in London
Published: March 31 2010 19:56 | Last updated: March 31 2010 19:56

The idea of a global levy on banks has gained momentum in international discussions, but Germany’s support for such a levy on Wednesday still leaves a global deal among the Group of 20 leading economies this year far from guaranteed.
…
Four of the most powerful advanced nations – the US, France, Germany and Britain – support a levy in principle, and the International Monetary Fund has already said there is a case for banks to shoulder a greater burden of taxation.

The IMF will publish a report on the subject at its spring meetings in late April, but it will leave decisions on implementation to the G20.

However, the problems with securing agreement are threefold.

First, no big country will accept the loss of fiscal sovereignty that a global banking levy might imply. Any agreement would have to be national and co-ordinated, not mandated by the G20. This creates the possibility that some countries would drag their feet, undermining the case for the tax in others.

Second, and more difficult, is the fact that Canada opposes a banking levy in principle. Its banks did not need support and it opposes increasing the burden of taxation on banks.
…
The third problem is that countries disagree on the ambition for a banking levy. The US wants its taxpayer dollars back, while the UK wants a future “pollution tax” on banks. France wants something similar applied to the entire financial services sector and Germany wants a more explicit insurance fund to pay for a future banking crisis.

These differences should be bridgeable with judicious international fudging so long as countries want a deal, which again demonstrates the reason why a truly global tax is unlikely. But the principled opposition from Canada among others is a big threat to any deal in 2010.

Nice, I just found out that one of my high school buds / former bandmates is a bankruptcy attorney in Tampa. I can’t WAIT to get caught up with this guy.

You have to see this:

http://www.youtube.com/watch?v=tefobaNjk7U