Bits Bucket for July 1, 2012
Post off-topic ideas, links, and Craigslist finds here.
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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Name:Ben Jones
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CBS Sunday Morning had a story that Florida is furiously spraying for mosquitos, because they’re bad for tourism.
Good luck with that eh.
Orange County was originally named Mosquito County. From Wikipedia:
In 1821, there were two counties that formed Florida: Escambia to the west and St. Johns to the east. In 1824, the area to the south of St. Johns County became Mosquito County, and Enterprise was named the County Seat. This massive county took up much of Central Florida. Mosquito County was renamed Orange County in 1845 when Florida became a state. Several counties, such as Osceola, Seminole, Lake, and Volusia County, were carved out of Orange County.
I don’t think DisneyWorld would be as attractive a destination if it was located in Mosquito County.
I wonder which name (Orange County or Mosquito County) would make it easier to sell real estate?
Ill bet a lot of you would buy into Mosquito county if it was 1/2 the price of Orange county..
Old timers tell stories of black clouds of mosquitos all over the Sunshine State back in the days before coordinated spraying.
As Polly has been saying..they’re goin’ skate.
NY appeals court gives big boost to BofA in MBS put-back suits
And here’s why. MBS pooling and servicing contracts, you’ll recall, make it exceedingly difficult for noteholders to bring claims that underlying loans breached representations and warranties by mortgage issuers like Countrywide. Under standard PSA terms, investors can’t take any action unless they’ve amassed support from noteholders with 25 percent of the voting rights in a particular MBS trust. If they manage to get over that procedural hurdle, they must then demand an investigation of reps and warranties breaches from the MBS trustee and then wait months for the trustee to respond. Only if the MBS trustee fails to take action on their behalf can investors bring their own breach of contract, or put-back suit.
http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=51149&terms=%40ReutersTopicCodes+CONTAINS+%27ANV%27
Rethinking the time value of money..
Usually, if you save your money, you will receive more (accrued interest) in the future. Now we are getting close to zip, and less than the rate of inflation. At the end of the year, the Bush tax cuts will expire, and maybe marginal income tax rates will rise. So.. should I be putting money in my 401k ? The money in safe instruments is being devalued over time, and the taxes associated with the future withdrawals is likely to rise. I am thinking there must be better ways to deploy surplus cash that I am bringing in every month. What are your ideas? So far, the best idea I have come up with is to pay down debt.
Extra credit for anyone who can relate these thoughts to housing.
Trapper
“What are your ideas?”
I’m pretty sure I can make a good case against just about anything.
Owning a paid off house is good if it’s where you plan to stay indefinately and you got it at a fair price. That’s one asset whose return I have confidence in — I and my children can live here. But they still seem determined to make you pay more than a fair price.
Any paper asset may contain hidden losses they are trying to stick on someone.
Stocks are overpriced. Interest rates can only go up. Commercial real estate has been prevented from reaching the market clearing price by extend and pretend.
Derivatives and other “alternative” investments can impose devastating losses if you lost, and you end up with counterparty risk if you win (unless the government bails out the counter parties.
Europe’s financial sector is in crisis. Emerging markets have stronger economies, but they are dependent on U.S. debt driven demand and have political risk. When the U.S. defaults on them they might seize the assets of Americans.
You can’t eat gold. Farmland comes with costs and responsibilities, and returns are dependent on crop prices.
Etc.
Owning a paid off house is good if it’s where you plan to stay indefinately and you got it at a fair price.
There are two caveats to that.
1) The losses are built in and massive at current inflated asking prices.
2) Unless you’re paying cash at a dramtically lower price than current asking, your losses are massive.
Time value of money.
“A penny saved is a penny earned.”
If you can save a lot of money over time then you don’t have to spend as much time earning money - much of the time that would ordinarily be spent earning money can be used for leisure.
So, in this sense time equals money.
And the time value of money is measured in how much time you don’t have to spend earning the stuff.
Or you can choose to play The Game that many people are enticed to play regarding time and money by spending more than you earn and paying for this privelidge by spending more time earning than you would othewise spend earning if you were to somehow learn to live within your means, or (gasp) somehow learn to live below your means.
re: “A penny saved is a penny earned.”
Here is an idea.
A COPPER penny saved is about 2.3 cents earned. Look it up:
http://www.coinflation.com
130% gain = about 44 years of 2% compounded interest…….
Buy rolls of quarters. Look for those dated in the 1960s. 1964 was the last year of silver quarters. But even younger coins are worth at least a dollar, if I read correctly from some web sites. I got six quarters out of a $10 roll last week.
There was a time when I had very good luck checking half dollars. Not so much anymore with the cognizance of the public that precious metals and zero percent interest rates are playing good cop/bad cop now. Coin roll searchers abound.
You will have to decide for yourself which horse in the glue factory is the healthiest one, and invest accordingly.
INVESTING
June 30, 2012, 9:13 p.m. ET
Surprising Winners and Losers in 2012 (so Far)
By GREGORY ZUCKERMAN
At the year’s halfway mark, investors are enjoying some surprising, and hard-fought, gains.
The market has overcome—or at least managed to deal with—an array of obstacles, from European debt and slow growth in the U.S. economy to weakness in formerly robust emerging-market economies including China, Brazil and India.
And Friday’s big stock rally didn’t hurt. The Standard & Poor’s 500-stock index closed the first half up 8.3%, while the Dow Jones Industrial Average clocked a 5.4% rise. Even more impressive: The Nasdaq Composite Index finished the first half of the year up 12.7%.
Bond investors also have profited. Investors in 10-year Treasury notes saw a return of just over 5%, including price gains and interest payments—as yields, which move in the opposite direction, fell to a record low of just over 1.5%. The gains for Treasurys shocked many experts who had advised investors to avoid Treasurys.
U.S. stocks and bonds haven’t moved higher because of new excitement about the nation’s economy. Instead, global economies look weaker by comparison, and investors anticipated help from the Federal Reserve. That sparked a shift by global investors to the U.S.
“We are the healthiest horse in the glue factory,” quips John Brynjolfsson, who runs hedge fund Armored Wolf.
…
I thought we were the cleanest shirt in the hamper.
Invest in your 401k only enough to get your full company matching contribution. Arguably, if they match you 50 cents for every dollar you put in and the market drops 33% that year, you have not lost what you put in, provided you are fully vested.
If you are 40-ish I recommend investing in large company stocks with little debt and priced below book value per share. Southwest Airlines, Toyota, Morgan Stanley, Goldman Sacks are a few examples according to my stock screener. I screen for stocks with under 2% yields, as dividend income will be taxed as ordinary income starting in January.
I like these stocks, priced above book value per share: Master Card, Google, Apple, Whole Foods Markets. The first three because I want to duplicate some of the top ten holdings of my PABGX fund which Is in my 401k but I cut my contributions significantly. Long term capital gains taxes at the federal level will be 20% in January. In California those gains are taxed as ordinary income, as much as 10%. if you stop earning income in California and are a non-resident, but reside in Nevada (auto registered, license is Nevada, you pay utilities in Nevada, and you are registered to vote there) you can return to Nevada for a break and sell your stocks that have gains, and return to California to work, thus avoiding a 10% hit.
I have been buying my company stock the last five years, it is not one of the above I mentioned. It is priced above $15, I have over 7600 shares, and my average cost is under $5, well under its book value per share. The outlook the next few months looks good so I will hang on. I won’t mention the company name since the haters on this blog will accuse me of “pump and dump.”
As for cash, I am all for accumulating it, especially if you are over 50 and averse to “gambling” in stocks. What Combo says is a good point. Extra cash buys you time. I want to save $100,000 in cash and could get there by the end of 2013, but I have to use some of it to pay for the second half of my IRA conversions to Roth IRAs. $100k would easily give me two years, perhaps three, of living without a job.
but I have to use some of it to pay for the second half of my IRA conversions to Roth IRAs.
Bill, do you really think that your current tax rates are the lowest you are likely to experience in your lifetime?
This drive to pay all future taxes now, when you are in your highest earnings years and likely paying higher rates as a result, strikes me as counter-productive.
No I don’t think my tax rates now are the lowest I will experience in my lifetime. And I am 53. Praise Buddha that I hope i will live beyond 79 (vegetarian several days a week and exercise fanatic and regularly see my doctors and dentist).
I am realistic that we are a mobocracy and people are not ready to return to the American libertarian heritage of Thomas Jefferson, Tom Paine, et al.
Nevertheless, I do not believe in placing over 60% of my assets into any one tad avoidance scheme or asset class. Congress Is never to be trusted.
If somehow I can build up the equivalent of $5,000,000 in today’s dollars, I would be finding legal ways to move half my wealth out of the U.S.
Anyone with less than $5,000,000 and a U.S. Citizen is a slave to the thugs in Washington.
If we’re contemplating Congress changing the rules and raiding 401k’s, what prevents them from also changing the rules on Roth IRAs?
I get your point that it is more of a risk-spreading move, and not a tax-reduction play. But I still don’t quite get it.
Wouldn’t your best bet, if you distrust Congress that much (which I think is a reasonable thing to do), be to have most of your assets in gold bullion and spirit it away to various hiding places, ala Alad’die?
Correction: Slaves to the DC/Wall Street run empire better known as GovCorp.
One must determine ones own comfort level of assets in precious metals and maintain that level. But I too well remember the 75% haircut gold got in 1980. What government won’t take away, the bubble burst could. Looks like severe deflation ahead the next five years, due to austerity in America. Not good for gold. Good for AAA municipal bonds and savings bonds though.
If we’re contemplating Congress changing the rules and raiding 401k’s, what prevents them from also changing the rules on Roth IRAs?
Do you honestly believe they won’t?
Correction: Slaves to the DC/Wall Street run empire better known as GovCorp.
I prefer to think of DC as a “wholly-owned subsidiary” of Wall Street.
If we’re contemplating Congress changing the rules and raiding 401k’s, what prevents them from also changing the rules on Roth IRAs?
Bingo. Hence the reason to buy stocks outside of tax deferred plans. You are on top of things and can sell the stocks quickly if Congress raises capital gains taxes to some hideous amount.
As for Roths. Don’t forget you are able to get your principle out of your Roth without penalty after five years from the establishment of that Roth. And then if you are past 59 and a half you get your gain tax free.
I converted $162,000 to Roths in 2010 and can get $162,000 out in 2015. In November 2018 I will be 59 and a half and can get access to all my Roth.
I doubt Congress will act between now and December 2015 and declare your principle you put into Roth’s is taxable. That’s 2 and a half years!
You have to be ever watchful on Congress.
“No Man’s life liberty or property is safe while the legislature is in session” - Judge Gideon Tucker
“Bill, do you really think that your current tax rates are the lowest you are likely to experience in your lifetime?”
Rates were lower from the mid 80s to 1993 so they were lower in Bill’s lifetime. From this point forward, I would agree that tax rates will not be this in Bill’s (or my) lifetime.
Since you often chime in on the Republican side of discussions, I encourage you to offer a Republican perspective on FHA lending, if you have one.
Do Republicans espouse sending low-income households down the path to financial ruin through offering them low-interest, low-downpayment mortgage loans? Or is this more of a Democrat ideal?
My perspective is govt should get out of housing, including FHA, Fannie, Freddie… all of it.
I would agree that tax rates will not be this [low] in Bill’s (or my) lifetime.
Smithers, I think you missed my point. I was referring to Bill’s _individual_ _marginal_ rate—not rates in general.
My expectation is that in retirement, Bill’s taxable income will be significantly lower than it is right now; after all, he is in his peak wage-earning years.
Now maybe I am wrong in that, and Bill’s investment income will exceed his current wage income (I hope so for your sake, Bill!). But even in that case, much of his income in the future will be sheltered from income because it is earned inside his Roths.
If my expectation is correct, though, then his current marginal rate is _higher_ than his future marginal rate—in which case, the decision to pay higher marginal tax rates now, by converting Roths, essentially is a statement that he thinks intentionally paying MORE taxes overall is a price that he is willing to pay to reduce some future risk.
I question whether that is a financially advantageous move.
“My perspective is govt should get out of housing, including FHA, Fannie, Freddie… all of it.”
Thank you.
Now I hope someone who disagrees with Mr. Smithers (and me, for that matter) will jump in here and enlighten us on all the great benefits America has enjoyed due to federal housing policy. Let’s get an open discussion going here, so America can find its way forward over the next generation.
You need to be baiting Barney Frank and his ilk not republicans.
Though the dems lead the way there are 2 groups that promote govt involvement in housing and are not limited to dems. 1) people that want free stuff 2) politicians that want votes
“You need to be baiting Barney Frank and his ilk not republicans.”
I’m hoping some true believers in the benefits to the American citizenry of FHA lending policy will step up to extoll them, and disclose their political affiliations when they do so.
So far, regulars who post here with Republican leanings have all indicated that FHA policy primarily reflects Democrat priorities.
Don’t any Democrats post here? If you do, please share with us why you think it is good policy to tempt low-income families into setting their households on course to financial ruin by accepting low-downpayment loans to buy homes? Is it the Democrat party’s goal to destroy the financial stability of the lower 50% of the income distribution?
If I am being unfair, please explain why (reportedly) there are 700,000 FHA loans currently in default, most of which were originated since 2007.
You’re buying into the Dem/GOP duopoly. They’re immaterial to solving the problem. They are THE problem. This notion that one of them is “for” and the other “against” is laughable. And the losers who show up here invoking a party line are liars.
I’m absolutely not buying into the Dem/Rep duopoly. Rather I’m trying to figure out which party supports the FHA lending policy that has led 700,000 families down the path to mortgage delinquency over the past five years. I want at least one, if not both, parties to stand up and take credit for their affordable housing accomplishments.
Home builders, UHSP (realtors), land owners, mortgage lenders……no party needed….
$100k would easily give me two years, perhaps three, of living without a job.
You must have pretty high means then. When I was unemployed, I lived quite easily on $25 a month in the midwest.
When I was unemployed, I lived quite easily on $25 a month in the midwest.
Um… Was that living in your parents’ basement and eating at their table?
I’m pretty darn frugal, and I certainly can’t live on $25 a month in any conceivable way… Unless maybe I was sleeping under and overpass and eating at the homeless shelter.
I think most could live on $600 a month in probably 75% of the country..if you are in a shared trailer, have safe drivers, live very close to work or bike.. and have no debt.. i didn’t say live well…but at that level you would be eligible for $200/mo in Food stamps and probably medicaid
Sorry, I meant $25K per year, $2000 per month.
700 rent
300 car payment
500 health insurance (cobra)
150 utilities internet
110 insurance
balance food etc.
$25K a year also entitles you to a a whole bunch of govt goodies. In my state $25K/yr for a family of 4 gets you $600/mo ($7200 a year) in food stamps alone, plus free insurance for kids, $10/month internet service, reduced cell phone plans, discounted land line service and on and on.
Ah, that makes way more sense, oxide…
In that case, I agree.
I would have to cut back some to live on $2K/mo. But it would not be extremely painful. I would have to have a roommate for sure, though—my current rent is $1350.
If I had no assets to protect, in that situation I would be tempted to forego the $500 health insurance, and let the state take the risk of any significant health events. With assets to protect, though, then the insurance is more important.
The trick is the health insurance or care. If that’s taken care of then yes, you can live on 2k/mo.
It depends on a lot on where you live, PiC. This is why I’m so hepped on Oil City, especially for seniors. With a paid-off house (or very cheap mortgage), Medicare, and a paid off car that just gets you to Wal-mart and back, one could easily live on $12K or so. And if you choose a boonie area of the Middle South or Ohio Valley, you can get by without much A/C and heat.
And if you choose a boonie area of the Middle South or Ohio Valley, you can get by without much A/C and heat.
I need A/C pretty much anywhere below 7000ft elevation…except maybe the west coast right on the water.
“With a paid-off house (or very cheap mortgage), Medicare, and a paid off car that just gets you to Wal-mart and back, one could easily live on $12K or so.”
I predict an Oil City price bubble in two decades from now. Buy your Oil City dream property now, or get priced out forever.
I have found that I can easily be happy living on $25k per year. Most of the things that I enjoy in life don’t cost a lot. This assumes no car payment and no credit card debt.
Bloomberg News
Billionaire Catsimatidis Says Buy JPMorgan as Cuban Shuns Stocks
By Matthew G. Miller on July 01, 2012
Stock markets can soar or falter in an instant. One day the European debt crisis is receding, the next day the region’s on the brink of disaster. Economic statistics never give investors the whole picture.
In these jarring times, Bloomberg Markets magazine in its August issue asked six billionaires for their advice on which stocks might outperform the market in the next 12 months.
Their responses showed much disagreement: Peter Hargreaves, the largest shareholder of Hargreaves Lansdown Plc, the U.K.’s biggest retail broker, said water, health care and technology stocks will outperform in the next 12 months.
Casino mogul Phil Ruffin, who controls the Treasure Island Hotel Casino in Las Vegas, and Mark Cuban, the owner of the Dallas Mavericks basketball team, both say to avoid stocks unless you have better information than the market.
“Pay off debt,” says Cuban. “Search online for the best price on items your household needs. Pay local merchants in cash, while still paying sales tax. You’ll never lose money or sleep.”
John Catsimatidis, the owner of Red Apple Group Inc., which counts a Pennsylvania oil refinery and the Gristedes grocery store chain in New York City among its assets, says betting on banking stocks like JPMorgan Chase & Co. will pay off.
“Mitt Romney will get elected, and banking will be straightened out,” the billionaire says.
Following are profiles of the six billionaires and their answers to the question, “What stocks — or categories of stocks — do you think will outperform in the next 12 months? Why?”
…
2012: Bullish market with a side of angst
By Maureen Farrell @CNNMoneyInvest
June 29, 2012: 8:14 AM ET
The bulls may stay around for the second half of 2012, but they may not be charging.
NEW YORK (CNNMoney) — The bull market will continue into the second half of the year but expect the gains to come with an extra serving of nausea-inducing volatility, say market strategists.
First the good news. Declining gas prices and a potential bottoming out of housing prices may help push corporate profits higher in the second and third quarter. And that will keep stoking stocks, which are on pace to close off the first half with decent gains.
“Companies have found a way to keep a lid on costs, so along with lower gas prices that generally means stronger earnings,” said Joseph Tanious, global market strategist at JPMorgan Chase (JPM, Fortune 500). Corporate America is also reaping the benefit of lowered expectations, he added.
Even noted bear investor and chief economist at Gluskin Sheff + Associates, David Rosenberg, won’t bet against the market. “You want to be careful about becoming too pessimistic in the current environment,” he said.
…
“…a potential bottoming out of housing prices may help push corporate profits higher in the second and third quarter.”
Some who were around during the early days of the HBB may recall arguments we used to get into here when we suggested that Wall Street and the U.S. housing market were attached at the hip. Many trolls appeared out of the nether regions of the blogosphere to tell us how we were full of it, and how the housing market had nothing to do with Wall Street.
What a long way we have come, as it appears that a bottoming of housing prices can now drive corporate profits higher. Being entirely clueless myself about how this might work, I would appreciate if anyone who thinks they understand the transmission mechanism from residential housing prices to corporate bottom lines could kindly explain.
Something about this whole story doesn’t add up. If it’s “good business” for both the borrower and the lender to reduce principle in order to keep the underwater borrower in the home, whose lost money when the loan went underwater?
IN DEPTH
MORE BORROWERS GET HELPING HAND
Loan investors increasingly see reducing mortgage principal as good business that keeps underwater owners in their homes
Written by Lily Leung
12:01 a.m., July 1, 2012
Updated 4:05 p.m. , June 29, 2012
About a year ago, then-schoolteacher Donna Marvel saw friend after friend get pink slips from the San Diego Unified School District. The grueling experience and the specter of more layoffs led her to take a $20,000 pay cut for what seemed like more-stable work at an online school.
The career change meant the 54-year-old City Heights homeowner was coming up short by $300 a month on an underwater mortgage, even after taking on part-time gigs and tapping her retirement savings. To Marvel’s relief, help arrived when her lender agreed to permanently forgive part of her mortgage principal — a move not often seen but one that might become more common in the coming years to keep underwater borrowers in their homes.
“I can make it now,” said Marvel, whose payments were reduced from $1,800 to $1,478 a month through the state’s mortgage-aid program, Keep Your Home California.
“I think I would’ve lost my home without it,” she added. “And the lender would’ve lost money.”
Principal forgiveness, once a 10-foot-pole kind of topic, is not only discussed more by lenders, it’s also increasingly being perceived as good business for folks with a stake in home loans. In its ideal use, this type of loan workout keeps underwater borrowers like Marvel in their homes, while investors and banks continue getting paid.
Opponents say these selective deals may lead to moral hazard, a buzz term that means borrowers take risky moves in hopes that they’ll get bailed out.
Either way, several signs point to the increased use of mortgage write-offs. The U.S. government reported last week that loan servicers included principal reductions in more than 10 percent of loan modifications during the first three months of the year. That’s up from 3 percent in the same time period last year.
The write-downs are expected to climb, in light of this year’s 49-state settlement with the major banks. As part of the deal, lenders must reduce the principal balances or perform short sales for about 250,000 underwater Californians, to the tune of $12 billion.
Bank of America, for one, has begun sending about 10,000 letters a week for the past six weeks in its attempt to get borrowers to apply for its in-house mortgage-forgiveness program. Many lenders are expected to send out their solicitations during the third quarter.
…
more-stable work at an online school
LOL!
I had the same thought, skroodle!
How does it “harm” a borrower to prevent him or her from buying an overpriced home with a low-downpayment loan which may soon leave the borrower underwater on the mortgage and shortly thereafter lead them down the path to household financial ruin?
FHA backs off rules that would’ve restricted credit
By Kenneth R. Harney / The Nation’s Housing
Sunday, July 1, 2012 - Updated 2 minutes ago
WASHINGTON — In a policy switch that could be important to thousands of applicants seeking low down-payment home mortgages, the Federal Housing Administration has rescinded tough new credit restrictions that had been scheduled to take effect today.
The policy change would have affected borrowers who have one or more collections or disputed-bill accounts on their national credit bureau files, where the aggregate amounts were $1,000 or greater. Some mortgage industry experts estimate that if the now-rescinded rules had gone into effect, as many as one in three FHA loan applicants would have had difficulty being approved.
Under the withdrawn plan, borrowers with collections or disputed unpaid bills would have been required to “resolve” them before their loan could be closed, either by paying them off in full or by arranging a schedule of repayments. In effect, if you couldn’t resolve the outstanding credit issue, you might not be able to obtain FHA financing. The rescinded policy would have replaced more lenient rules allowing loan officers to discuss the accounts with applicants, and determine whether they represented material risks that the borrower might fail to make the mortgage payments.
Disputed bills are commonplace in many consumers’ files, but may not indicate serious credit risk. Rather, they might simply be a disagreement between merchant and customer over price, quality of the product or the terms of the credit arrangement. Open collection accounts are also common but tend to be viewed more ominously by lenders since they often indicate nonpayment over an extended period. Unpaid creditors frequently charge off unpaid accounts, then sell the files to collection agencies who pursue the customer and report nonpayments to the national credit bureaus — Equifax, Experian and TransUnion.
Critics of the policy complained that it tilted the scales too heavily in favor of creditors and disproportionately harmed FHA’s traditional core borrowers — low-income to moderate-income families, first-time buyers and minority groups. Other critics argued that the policy would not help FHA weed out serious credit risks since private lenders already are doing so by imposing their own credit score and other restrictions on applicants, known as “overlays” in the mortgage industry.
…
Question: how does a financial disaster like subprime/neg-am/interest only lending happen? Answer; right out in front of everyone, and it is touted as helping the borrower out when it is going on.
‘Thu Apr 26, 2012 (Reuters) - More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.’
‘The overwhelming majority of the U.S. is still seeing home prices decline,’ said CoreLogic senior economist Sam Khater. ‘Many borrowers continue to be quickly wiped out.’
A funny thing about time. A few years pass, and people forget what happened. These folks in charge are able to tell us that the cure for easy money and lowered lending standards is more easy money, and lower lending standards. And here we see it, drip by drip, from ‘a name you can trust’, one of many who can always be counted on to float the latest establishment spin.
How is this different from what Australia tried? Or Canada and China? It made things worse there and it’s making things worse here. And I’ll add this about time. It takes something dramatic (traumatic), like the great depression, to be stamped on the public’s memory for generations. Hey, politicians; don’t say you weren’t warned.
“‘The overwhelming majority of the U.S. is still seeing home prices decline,’ said CoreLogic senior economist Sam Khater. ‘Many borrowers continue to be quickly wiped out.’”
Why is Uncle Sam trying to financially wipe out low income and minority families? Is this more of a Democrat or a Republican scheme?
Why is Uncle Sam trying to financially wipe out low income and minority families?
Uncle Sam doesn’t _want_ to wipe them out. They are mere collateral damage, barely noticed as they are ground under the wheels of the effort to save the banksters.
Is this more of a Democrat or a Republican scheme?
Both are equally sold out to the banksters.
’sold out to the banksters’
This wave of risky lending has been cooked up, funded and sold by the United States government.
This wave of risky lending has been cooked up, funded and sold by the United States government.
+infinity.
‘The overwhelming majority of the U.S. is still seeing home prices decline ??
Even if the value did not decline with these 3% down payments they are underwater “day one”….Its not difficult math…I just can’t understand, particularly given what we have went through in the housing crash the last few years, how the government can continue to offer 3% down payment loans….
“I just can’t understand, particularly given what we have went through in the housing crash the last few years, how the government can continue to offer 3% down payment loans….”
Or why a potential buyer would consider it a good idea to buy a house with 3% down, because yes, you are instantly under water given the cost of selling, let alone any further price declines, taxes, maintenance expense, etc.
These tiny down payment loans are celebrated as an affordability play, versus what they really are: instant debt serfdom.
Or why a potential buyer would consider it a good idea to buy a house with 3% down, because yes, you are instantly under water given the cost of selling, let alone any further price declines, taxes, maintenance expense, etc.
You have it backwards, Lisa: low downpayments are GREAT for buyers.
With almost nothing down, they have almost no skin in the game. In other words, they are taking almost no risk, and can always have walking-away in their back-pocket as a low-loss option.
It’s bad for the risk-taker (fedgov/taxpayer), but good for the buyer, who is off-loading what would traditionally have been their risk onto the willing risk-taker.
‘”This wave of risky lending has been cooked up, funded and sold by the United States government.”
Fine. Heckuva job! Were both parties equally complicit, or does one party deserve more credit than the other? My limited understanding of the situation is that Democrats are the long-time champions of ‘affordable housing policy’; are they standing up and taking well-deserved credit for putting almost a million new buyers on the path to mortgage default?
Or do the Republicans deserve credit?
Come on, partisans, stand up and claim responsibility for what your poxed houses have wrought!
“With almost nothing down, they have almost no skin in the game. In other words, they are taking almost no risk, and can always have walking-away in their back-pocket as a low-loss option.”
You are missing an important detail, which is that many of these FBs think they are actually buying an asset, rather than ‘throwing away money on rent.’ If they are paying 31%+ of household income on PITI plus other expenses to cover the rights and privileges of home ownership, they are forking out at least 8% more of their incomes than we pay to rent in a very nice area.
Any of these folks who are later foreclosed will see the money they threw away on ownership go POOF, and will soon find themselves living in a far less comfortable domicile, but still overpaying for it. This is the price low-income households the FHA is supposedly ‘helping’ pay for volunteering to become cannon fodder in the effort to artificially inflate U.S. housing prices.
Is it just me, or is this scheme fundamentally evil?
I am greatly impressed on the silence of the HBB’s normally vocal band of rabid partisan operatives. Does anyone in DC actually think the FHA lending scheme has produced a desirable outcome? If not, why don’t they stop it, before sending more households in the 99% down the Road to Serfdom? It sounds like a decision that just came down from On High supports a continuation of federally-financed loose FHA mortgage lending which has put nearly 1 million American families on the path to foreclosure since 2007.
And while we are on the subject, is there a list anywhere of politicians who support the FHA’s policies? I would think the American voter might be interested in which politicians support policies designed to destroy American families’ financial stability, so we can vote them out of office this November.
“You have it backwards, Lisa: low downpayments are GREAT for buyers.
With almost nothing down, they have almost no skin in the game. In other words, they are taking almost no risk, and can always have walking-away in their back-pocket as a low-loss option.”
3% down is essentially renting with a really big security deposit. If the house appreciates you win. If it depreciates, you leave and forgo your security deposit.
“If it depreciates, you leave and forgo your security deposit.”
You also forego the excess of the costs of owning over the cost of renting a similar property over the same period. In California, we are typically talking about a large sum of money. For instance, the 6% (or so) in transactions costs to buy a $500,000 California starter home is $30,000. And the monthly payments are typically higher than renting. Don’t forget to add these extra costs of owning in to your calculation.
“You have it backwards, Lisa: low downpayments are GREAT for buyers.”
Great for the banks that get to collect servicing fees, for sure. But these folks are immediately underwater unless the house appreciates, which makes it difficult to sell if something changes in their circumstances, e.g. job loss, family emergency.
The down payment requirements of 10% or 20%, which were in place through the late 90’s, made it difficult to buy a house on impulse, as it generally took a few years to get your balance sheet in order to qualify for a mortgage.
Any of these folks who are later foreclosed will see the money they threw away on ownership go POOF, and will soon find themselves living in a far less comfortable domicile, but still overpaying for it. This is the price low-income households the FHA is supposedly ‘helping’ pay for volunteering to become cannon fodder in the effort to artificially inflate U.S. housing prices.
Is it just me, or is this scheme fundamentally evil?
I totally agree, actually, PB. I think the people bearing the brunt of the attempts to pump up the market or slow the decline are disproportionately lower-income.
To be clear, I do not in any way support the FHA becoming dominant in the lending market.
All I was arguing, though, is that I don’t think the low-income folks paying penalty are intentionally getting screwed by the system. I think they are unintentionally bearing the brunt of an effort that is focused on saving banksters; anyone who fell under the wheels of such an effort is simply grist for the machine.
Is it less evil if it is unintentional rather than an intended consequence? Not sure I have an answer to that one… Do you?
“I totally agree, actually, PB. I think the people bearing the brunt of the attempts to pump up the market or slow the decline are disproportionately lower-income.”
Let me stop you right there; isn’t this exactly the group who is supposed to be ‘helped’ by the U.S. federal government’s ‘affordable housing‘ policy?
Proposition: If a federal housing policy is offered that claims to ‘help’ your household, consider avoiding it like the plague.
“Is it less evil if it is unintentional rather than an intended consequence? Not sure I have an answer to that one… Do you?”
I most certainly have not. Perhaps the problem is that I subscribe to neither the Republican nor the Democrat flavor of political religion.
I wish someone could come out here and now to say, ‘I am a (Democrat / Republican), and I believe FHA lending has been great for America because (fill in the blank here).’ Come on, beltway insiders, enlighten us ‘hicks from the sticks’ on the inside-the-beltway perspective on housing policy.
Or otherwise just come out and admit that the FHA supports lending that benefits DC and Wall Street members of the 1% club, by screwing Main Street American households one way or another. I’d be happy to hear you say that, too.
The stove needs to be red hot in order for people to remember to not ever again lay their hand on it.
If the stove is only a little bit hot then they will forget and sooner or later they’ll do it again.
If the stove is red hot then they will never forget.
Unfortunately many people don’t seem to learn about the red hot stove from seeing what it does to other people’s hands, they only seem to get the message when it involves their own hand. And even then some people don’t get it.
“Unfortunately many people don’t seem to learn about the red hot stove from seeing what it does to other people’s hands, they only seem to get the message when it involves their own hand. And even then some people don’t get it.”
Or, to once again quote American Founding Father Ben Franklin:
God Bless America! Happy July 4 to all!!!
And here we see it, drip by drip, from ‘a name you can trust’
And right there is the crux of the biscuit.
These power structures own the media and the public is willing to accept what the media states, irrespective of the fact that what they state is complete and utter BS. We hear it every single day, it’s all around us and we even have their proxies posting on this site. The truth and lies are so blurred that discerning the difference is nearly impossible.
How did the FHA manage to wrack up 700,000 delinquent originations in the short span of five years? Wow…
Does anyone have statistics on the total number of U.S. mortgages originated since the onset of the Great Recession in 2007? I’m guessing the FHA share must be a significant portion thereof.
FHA TO SELL MORTGAGES TO HELP OUT HOMEOWNERS
By NYT NEWS SERVICE
12:01 a.m., June 11, 2012
Updated 10:27 p.m. , June 8, 2012
In a move intended to prevent foreclosure for thousands of homeowners and shed some seriously delinquent home loans, the Federal Housing Administration will sell off distressed mortgages in bulk.
The housing administration aims to sell 5,000 mortgages each quarter beginning in September. The agency is burdened by more than 700,000 seriously delinquent mortgages, most of which originated from 2007 through 2009. Selling the loans could create a backdoor route to debt reduction. Investors who buy them would have greater leeway to reduce principal or offer rent-to-own plans and other means of making the mortgage affordable, Housing Secretary Shaun Donovan said Friday.
Eligible loans must be more than six months delinquent and must have been through the administration’s available foreclosure-prevention programs. The loan servicer must have begun the process, and the borrower must not be in bankruptcy. Investors would have to halt foreclosure proceedings for at least six months.
…
The good news: The LPS report suggesting an FHA foreclosure surge in April was inaccurate.
The bad news: An FHA foreclosure surge is in the pipeline, and the “inaccuracy” was primarily a timing issue, not a magnitude issue.
Bloomberg News
Review Finds Report of April FHA Foreclosure Surge Inaccurate
By Clea Benson on June 29, 2012
Data provider Lender Processing Services Inc. will change the way it calculates foreclosures on loans backed by the Federal Housing Administration after FHA said the company’s April report of a spike in home seizures was inaccurate.
LPS reported June 8 that foreclosure starts on mortgages backed by the government insurer rose 74 percent in April, while the FHA’s own numbers instead showed an 11 percent drop. An examination found the difference largely was attributable to a lag between the time when banks take foreclosure actions and the time when they report them to LPS, according to an FHA official who spoke on condition of anonymity because the meetings were private.
LPS described the issue as a difference in methods.
“The analysis conducted has identified differences in the methodologies used to gather the data,” the Jacksonville, Florida-based loan processor said today in an e-mailed statement. “We are working with the FHA to ensure our July report will also account for FHA’s methodology.”
The FHA’s database showed foreclosure starts fell in April to 18,975. LPS originally reported that banks began action to seize 63,126 homes in April, up from 36,311 a month earlier.
FHA officials said they expect an uptick in foreclosures because legal disputes between state and federal officials and mortgage servicers over faulty foreclosures were resolved with a $25 billion settlement in February. Foreclosures had been slowed while the parties were negotiating.
“While we do anticipate elevated levels of foreclosure starts for our portfolio in the coming months, the very large increase reported by LPS for the month of April was not accurate,” the agency said in an e-mailed statement.
…
FHA Underestimates Mortgage Delinquency Rates, Study Says
By Clea Benson - Jun 28, 2012 5:26 PM PT
More than 40 percent of the U.S. Federal Housing Administration loans originated from 2007 through 2009 will be delinquent within five years and the agency’s data underestimate that risk, according to a study by the Federal Reserve Bank of New York and New York University.
The research published today used loan information from data provider CoreLogic Inc. (CLGX) to track FHA-insured mortgages and predict default rates based on borrower characteristics.
The FHA, part of the Department of Housing and Urban Development, underestimates risk because it counts refinanced mortgages as successful loan terminations, even though the same borrowers are refinancing into new mortgages backed by the government insurer, according to the paper published on the website of the National Bureau of Economic Research. The researchers computed the risk of default by linking all of the loans connected to each borrower.
“Having such a very large fraction of the people who borrow from you become delinquent could never be regarded as good public policy,” said Andrew Caplin, a professor of economics at New York University and one of the study’s authors.
…
How does reinstatement of loosey-goosy FHA lending standards square with a rising tide of taxpayer-guaranteed losses on FHA loans?
Where does support for this kind of policy originate?
MARKETS
June 6, 2012, 6:44 p.m. ET
Probe Widens Into Mortgage Lenders
By NICK TIMIRAOS
Federal officials are broadening their investigations of mortgage lenders that use a popular federally backed mortgage program, a move that could force more banks to pick up some of the rising tab for losses at the Federal Housing Administration.
U.S. attorneys already have reached settlements with four banks, Bank of America Corp. (BAC +5.68%), Deutsche Bank AG, Citigroup Inc. (C +3.87%) and Flagstar Bancorp Inc. (FBC +10.53%) recouping $1 billion for the FHA.
Last month, the inspector general for the Department of Housing and Urban Development, which oversees the FHA, issued subpoenas seeking information from additional lenders, including MetLife Inc., (MET +4.61%) SunTrust Banks Inc. (STI +3.99%) and U.S. Bancorp, (USB +2.29%) among others, according to people in the banking industry.
The FHA doesn’t make loans but instead insures lenders against losses on mortgages that meet its standards. In the past, the FHA has looked into whether lenders ignored cases of potential fraud and failed to properly verify borrowers ability to pay. The subpoenas could be used to uncover potential violations of FHA program rules. If they discover violations, the findings could be used to strike a financial settlement with the lenders.
…
Ad seen in business section of today’s UT-San Diego (first time I have seen it…):
TRUSTEE, FORECLOSURE, COMMERCIAL REAL ESTATE AND NOTE AUCTION
1000s OF ASSETS MUST BE AUCTIONED AT WHOLESALE PRICES
BUY HOMES AT WHOLESALE PRICES
TRUSTEE FORECLOSURE AUCTIONS
SAN DIEGO COUNTY
210+ HOMES AT WHOLESALE PRICES
LIVE EVENT THUR, JULY12, 9AM
ORANGE COUNTY
90+ HOMES AT WHOLESALE PRICES
LIVE EVENT MON, JULY 2, 9AM
http://WWW.AUCTION.COM
THE NATION’S LEADING ONLINE REAL ESTATE MARKETPLACE
Auction.com has been selling homes for a while like this (at least since latter half of 2011) The buy-to-rent crowd has already infiltrated this venue, as they actually get more time to conduct diligence, since they get the list of properties for sale with more time before auction than on the courthouse steps.
That’s great. I’m looking forward to a bevy of new rental investment properties flooding the market and suppressing rents.
I could tell a long story about auction.com. But the short of it is, don’t bother. Williams is better, but they got nothing to sell, in AZ at least.
Schill Bidders.
A PRIMER ON PRINCIPAL REDUCTION
Although some fear its effects, the option is likely to continue growing in popularity, especially in California
Written by Lily Leung
12:01 a.m., July 1, 2012
Updated 5:08 p.m. , June 29, 2012
A principal reduction occurs when a lender cuts the amount that a borrower owes on a home to something more affordable. What’s reduced is essentially forgiven by the lender.
For example, borrower John Doe owes $100,000 to Bank ABC. Doe, who is going through a financial hardship, cannot pay his current monthly mortgage amount and is approved for a principal reduction by his lender.
The lender determines that reducing the loan balance by $20,000 would make Doe’s payments more affordable, so $20,000 of the total mortgage amount is written off, or forgiven. The new loan is for $80,000, and the monthly payments are adjusted accordingly.
In the state mortgage-aid program, Keep Your Home California, for instance, homeowners’ monthly payment ratio must be cut to 31 percent of their gross household income, and up to $100,000 of principal can be reduced for each household.
How mortgage reductions work varies by lender and government program, but the reduction is usually paired with another change in the mortgage. In the state program, borrowers seeking assistance could expect one of these scenarios:
• Principal reduction with a change in loan term, like extending the life of the mortgage from 30 years to 40 years.
• Principal reduction with a drop in interest rate, say, going from 6 percent to 5 percent.
• Principal reduction with changes to the loan term and interest rate.
…
“… the option is likely to continue in popularity …”
Lol, what a surprise! Borrow $100,000, pay back $80,000. Such a deal!
All one has to do is submit the paperwork to the bank and - presto - it’s a done deal.
Oh, that is unless the bank happens to lose (loose?) the paperwork - an unlikely event.
(snort)
If that’s the case then the borrower will have to re-submit the paperwork to get the ball rolling again. Meawhile he should be encouraged to keep up with the old payments at the old rates.
Meawhile he should be encouraged to keep up with the old payments at the old rates.
In the hay-day of mortgage mods, they were generally being told to make the _new_ payment rather than the old—in effect, putting them in default on their previous legal obligations under the mortgage.
Many were surprised when they were not approved and had consequences of being in default, even when they were doing what they were told to do by the servicer.
In the state mortgage-aid program, Keep Your Home California
These programs are a HUGE give-away to the lenders.
The lender gets compensated by the state-run program, which the state doesn’t mind paying because it is getting the money from the feds.
So the lender ends up with a lower-risk loan, because it is less underwater and the borrower is correspondingly less likely to walk away. And someone else is paying the bill.
p.s. And in this scenario, the states are effectively acting as money-launderers for the feds; the feds would catch too much political heat if they gave more money to the banksters directly, but there is little backlash when it has been laundered in this way by the states. It’s smart politics.
Some of the programs like this that I’ve seen also include an “appreciation sharing” feature, so that if the home value rises above the reduced principal amount, the lender gets a piece.
Comment by Bill in Los Angeles
2012-06-28 21:16:50
Today’s announcement by the neo-conservative-staffed neo-conservative SCOTUS makes it less attractive to make long term plans for life in the U.S. The road to serfdom is now at an incline and the pace is quickened.
Materialism is looking more and more like a burden when you have to anticipate shopping around for the highest after-tax/after-expenxe income place to be (as a contractor).
Materialism has always been a burden; most just don’t realize it. But it is not at all new to these times.
Comment by Bill in Los Angeles
2012-06-28 21:46:11
I’ll probably repost tomorrow.
Sad true story.
Young colleague of mine, a 37 year old (as of a couple weeks ago) was diagnosed with a terminal illness around a year ago.
[...]
Life i short. Somehow I listened to a song by The Verve, “Bittersweet Symphony” this afternoon. Then I was thinking about my friend. Tragic and haunting.
Very sorry to hear about the loss of your friend, Bill. My sincere condolences.
Yes, life is short and uncertain.
Comment by Cantankerous Intellectual Bomb Thrower©
2012-06-28 22:32:07
[...]
The brutal truth is that every love story ends in tragedy, whether due to death of a partner, or to disintegration of mutual attraction into disdain.
Ouch! Now there’s a cheery thought, PB!
And I thought _I_ was jaded…
I consider myself neither jaded nor disillusion. My greatest strength and weakness is that I am a realist.
This is what I consider jaded: Give up hope for a better tomorrow, because nothing you say or do will affect the status quo, anyway.
“Comment by BetterRenter
2012-06-30 02:03:59
CIBT said: “It will be fun a few years from now comparing outcomes to the outrageous statements some of these foolish ‘experts’ made.”
We could do that now. There’s a plethora of self-serving, wrong, and frankly deceitful statements by David Lereah from his heyday.
But there’s no point. We refuse to learn from these things; “we” being the public at large, not you and I. We have a solid decade of provably wrong statements from Bernanke and the rest of his officious ilk. The data is too strong.
But data is irrelevant. We’re starting the False Recovery and once again, even on this forum, from a few posters that I don’t care to name, they have all the bullshit facts and figures that speak of some sort of deceitful and unsustainable run up in prices. Greed can’t be conquered with reason. Greed is by definition unreasonable. Self enrichment has become the new American religion and there’s nothing to be gained by verbosity expended in combating it. After all, through the first part of the housing bubble, right here on this blog among others, how many people were really saved? From the national stats, it’s not even a rounding error, percentage wise. It’s probably tinier by far than the error bar in the sampling method.
I’m not saying we should quit. Not quit the HBB nor quit opening our mouths. But I am saying we’re going to lose again. We can’t beat Generation Greed. We should measure our efforts by quality, since the quantity is such a disappointment.”
Thanks.
Comment by Ben Jones
2012-06-29 11:26:13
Just stating a fact. What’s wrong with that? Anyway, how is the cost of a house in Australia or Canada relevant to, say, Arizona? I can’t substitute one for the other.
I’ll give you an example of a bargain I got once in the early 90’s. It was a 1/1 rental on 8 acres in central Texas for $285/month, bills paid. I lived there for 5 years. Nothing better than cheap living.
Ben, my best oil-bust bargain was an apartment in Lafayette, LA back in the late 80’s: $315 for a large 3/2 in a nice complex with a pool. Crazy-cheap. We split it among four guys and it was WAY cheaper than living on campus, and we had much more space, much nicer amenities, etc.
Perhaps seeing that bust in action helped me spot the current bubble; I know you have said that experience informed your conclusions.
“Nothing better than cheap living.”
There it is. Keep your living expenses down and you don’t have to earn all that much money. If you couple this concept with a job that happens to earn you a lot of money then you won’t have to spend much time working it.
Time, low living expenses, saved money, freedom - they are all linked together.
Same with high living expenses, owed money, restricted freedom - they too are all linked together.
Combo’s example was of his college days. My junior year I lived in a 1 bedroom with a roommate. We had bunk beds in the bedroom. $350 rent including all utilities, and it had a washer/dryer which was almost unheard of for apartments in that area at that price.
And that arrangement was great when I was 20 y/o and perpetually broke. At 30, 35 or 40….not so much.
One of the reasons I went to college was so I wouldn’t have to live in a $350/month 1 bedroom apartment. I could work at Taco Bell for $8/hr and live like that.
If you couple this concept with a job that happens to earn you a lot of money then you won’t have to spend much time working it.
combo, have you managed to cut back on the time component yet?
Many jobs don’t seem that amenable to being done part-time in today’s job market…
“combo, have you managed to cut back on the time component yet?”
Yeah, I have. The job I have offers a lot of non-mandatory overtime so I leave those hours to those who are hungrier than myself.
After all my monetary goals and needs were reached my desire for more money rapidly dropped off.
The irony of my job is that is the easiest job I have ever worked and at the same time it pays the most, so it is not a job that I am anxious to retire from, although I could easily do so. I say irony because there were times in my career that I would have, without hesitation, jumped ship because during those times my job sucked and so did the pay, but I didn’t have the choice of quiting because I was financially locked in.
But those lean times then conditioned me to appreciate the current time which, for me, is a time of plenty.
My hat is off you to, sir. Well done.
It is the non-overtime portion that is particularly hard to cut back on; whether you need the job/income or not, you may not want to go cold turkey to 0% time…
I believe that we human entities, at root, are problem solvers. We love to solve problems, hence the popularity of crossword puzzles, jigsaw puzzles, etc. There is really no logical reason to solve any of these puzzles but nevertheless that’s what we spend a lot of time doing.
The job I have offers a series of technical puzzles that need to be solved and I like solving them because:
1. I can. And it exercises and extends my problem-solving capabilities, and …
2. I get paid well for doing it.
So I’m quite hesitant to simply walk away from such a job.
There is an interesting book titled “Flow” that talks of the joys of problem solving (among other things).
Wiki-up “flow” for the author’s name and a brief discription of the concept.
Ooops. Better to wiki-up “flow (psychology)” in order to seperate this discription of flow from all the other descriptions.
So I’m quite hesitant to simply walk away from such a job.
I resemble that remark, combo.
Years ago, I used to hate my job, and very much felt enslaved to it at certain points of time, and resented that feeling. As time went on, and my need for the job diminished, I found that I felt less enslaved to it—and felt correspondingly less of a need to escape. It’s rather ironic.
At any rate, I’m enjoying it enough that I think I would continue even if I were fully at my FI-point (not quite there yet). At least for the foreseeable future, anyway.
p.s. I’ve definitely heard of the “Flow” concept, but haven’t read the book yet. Adding it to my list now… Thanks!
Time, low living expenses, saved money, freedom - they are all linked together.
Not to mention more time to surf…
In 1982 I came back here from Dallas and got a daylight basement apt in an old house for 185/mo. It had a walk-out entry with a big picture window so it wasn’t dark or anything. The landlord was a finance guy who appreciated a good tenant so my rent stayed the same for the 5 years until I moved out.
I was able to pay my way through college playing music at night and paying cash for my tuition.
Good times.
I was able to pay my way through college playing music at night and paying cash for my tuition.
Wow, that’s impressive! Nice work…
“…playing music at night and paying cash for my tuition.
Good times.”
Sounds like my college experience! Funny thing is that I actually played a lot more gigs than most of the music students, even though I wasn’t a major. There was a rumor among the music students that I was always cash-rich.
FHA Gave Mortgage Help to Thousands of Tax Deadbeats
By MARK MOONEY
June 28, 2012
Several thousand homeowners who got federal help to avoid defaulting on their mortgages were tax deadbeats who owed the government more than $77 million in back taxes, a new report has determined.
Despite owing the feds taxes, it was still legal for many of those to get help from the Federal Housing Administration. Others, however, were ineligible depending on the program for which they applied, but got the federal cash anyway.
The report by the Government Accountability Office released Tuesday looked at two programs in the FHA during 2009 that were part of the government’s Recovery and Reinvestment Act efforts to ease the mortgage crisis for many homeowners.
“In 2009, FHA insured over $1.44 billion in mortgages for 6,327 borrowers who at the same time had delinquent tax debt and benefited from the Recovery Act,” the report stated. “According to IRS records, these borrowers had an estimated $77.6 million in unpaid federal taxes as of June 30, 2010.”
The audit looked at the FHA’s mortgage insurance program and its First Time Home Buyers Credits. Tax debtors were allowed to receive benefits from the FTHBC program, but are ineligible for the mortgage insurance program.
About half of the 6,327 had received help from the mortgage insurance program, the audit said.
Nevertheless, the GAO found that it could not determine “the proportion of borrowers who were ineligible” because of difficulty tracking each applicant, so they sampled eight borrowers.
“We found that five of our eight selected borrowers were not in valid repayment agreements at the time they obtained FHA mortgage insurance,” it concluded.
The GAO warned that records show that tax deadbeats were as much as three times more likely also to default on their loans, “which potentially represents an increased risk to FHA.”
…
Nevertheless, the GAO found that it could not determine “the proportion of borrowers who were ineligible” because of difficulty tracking each applicant, so they sampled eight borrowers.
Eight does not strike me as a statistically-significant sample…
…guns made in China
Didn’t have a chance to respond to Oxide’s post yesterday regarding “guns made in China, customer service in India”. The gun lobby successfully pushed through a number of protections for US manufacturers. Most guns, unless they meet very specific criteria or are considered “historical artifacts” (Mosin Nagant, SKS, etc.) must contain a certain number of US-made parts or be manufactured in the US.
For example, my Romanian WASR-10 AK-47 is probably made up of over 60% US parts, with most of the work having been done in the US, starting with surplus Romanian parts. For the most part, US gun manufacturers enjoy some of the best protections of any industry in the US. The amusing thing to me, is that price is very competitive, quality is very high, and US companies are making money hand-over-fist. So much for protectionism being bad for consumers or businesses…
ex. Smith & Wesson M&P9 or .40 can be purchased for $479. Compare that to an HK or Sig Sauer (both European companies) for $800 plus…
So where do all of the old guns go?
Its seems like they would have a rather long lifetime and sales would slowly go down.
So where do all of the old guns go?
Sounds like a country song :-).
“So where do all of the old guns go?”
Hmm, this could be, with intergenerational motif. Grampa’s Garand…
They don’t go anywhere
Seems most people who own them own either 1-3 of them as the squad does but after acquiring a dozen or so may as well own 20, 30, 40+…
I think I know where they go. I’ve only bought one in my life, but own 5 or 6. Rednecks pass them down from generation to generation, sometimes that’s the only family wealth. My dad’s goal was to provide each child with a high quality hunting rifle and over time he collected a handful of pre-64 Winchesters for just that purpose. As the oldest child I got the first one, which had come from his father. The rest he bought over time as good opportunities presented themselves.
Dumb question: what’s the pre-64 restriction about?
The just changed the design in 1964 and the older ones are considered much more desirable. I’m not into them enough to tell you what those design changes were…
Guns are a pretty solid investment.
Well made ones rarely go down in price. Many skyrocket in value due to congressional and state “crime control laws”
Indeed, WASR-10 AKs have gone up 20% in price in just the last 3 months. Whether due to increased demand, reduced supply, or some other factor (ATF), I’m not sure…
Wait, aren’t Glock, Speyer, Baretta, Sig Sauer etc made in Europe? And Taurus in Brazil? Or do they all have US plants now?
Most have US plants to get around the import laws for firearms. As I said, one of the best protected industries in the US, yet also hugely successful. Begs the question: is the firearms industry unique or could other US industries benefit from similar protections?
“Smith & Wesson M&P9 or .40 can be purchased for $479. Compare that to an HK…..”
I have both and much prefer the HK but your point is well taken.
HK makes a great gun, and many don’t like the long pull of S&W double action triggers. For the money though, they are hard to beat. Same goes for Ruger.
“Sand State” Re-default Rates Over 50% - Administration Advertises Mortgage Modifications!
Confounded Interest | 07/01/2012 | Anthony B. Sanders
As I discussed at the American Action Forum with Douglas Holtz-Eakin, Jared Bernstein and Jason Gold, there are 14 Administration mortgage modification programs (including the Attorneys General Settlement). And the Administration keeps insisting on MORE programs such as principal reductions and HARP 2.0 Supersized!
The Administration is even ADVERTISING their refinancing programs.
Of course, the last line is absolutely false. SOMEONE pays for loan modifications and principal reductions and those people are investors such as banks, Fannie Mae, Freddie Mac, pension funds (yes, even Clark Griswold will have to pay for Cousin Eddie’s loan modification and principal reduction).
In order to claim that it won’t cost taxpayers a cent is the assumption that since Fannie Mae the government is already on the hooks for Fannie Mae and Freddie Mac losses, it won’t cost taxpayers any ADDITIONAL money. But even this assumption is false. We still want FHFA, Fannie Mae and Freddie Mac to reduce taxpayer exposure to losses and principal reductions would clearly cost taxpayers billions.
Before any more government mortgage modification programs are added, we need to look at the success rate thus far.
According to Transunion, over 50% of modified mortgage re-defaulted within 18 months. Nevada, Arizona and Florida exceeded 60% within 18 months.
“The Administration is even ADVERTISING their refinancing programs.”
With bobble-headed ghouls, no less. Makes refinancing seem pretty appealing!
“Millions Ignore President’s Refinance Advice”
Where do they find the ghoulish bobble-heads who are featured in these advertisements?
Did the Libor lies involve collusion? I see how one bank could lie about their interbank lending rate, but not all of them, unless top-down coordination was in play.
ft dot com
Last updated: July 1, 2012 7:43 pm
Concerns over Libor rate raised in 2007
By Brooke Masters and Patrick Jenkins in London
Bankers, traders and investors complained to US and UK central banks and regulators that false information was being supplied for the setting of a critical London lending rate as early as 2007.
But only the Commodity Futures Trading Commission, the US regulator, jumped on the issue and started demanding information about the setting of Libor, the London interbank offered rate, which is the benchmark for $360tn in mortgages, credit cards and other contracts worldwide.
The CFTC started investigating in May 2008. It was contacted by a whistleblower, and by spring 2010 it had enlisted the UK Financial Services Authority with strong evidence of attempted manipulation.
The spiralling investigation has since pulled in nearly a dozen regulators and more than 20 banks and interdealer brokers on three continents. Barclays last week signed the first big settlement, paying a record £290m to US and UK authorities for attempting to manipulate Libor and similar rates set in Brussels and Tokyo.
Lawyers said the CFTC’s more aggressive reaction highlights a key difference between markets regulators, who generally crack down hard on any suggestion that investors are being misled, and prudential regulators and central bankers who are more focused on protecting the broader system.
Bart Chilton, a CFTC commissioner, said: “Regulators all too often just assumed that market participants would do what was expected. In 2008, we all got a slap in the face wake-up call that told us we had to change, and we did.”
Some central bankers admit there has long been a recognition that the Libor mechanism was both flawed and open to abuse.
“Everyone knows it’s not a proper reflection of banks’ borrowing costs,” says one senior regulator.
Certainly the CFTC’s dogged probe contrasts sharply with the slow-moving response to early complaints during the financial crisis. Back then, bankers, traders and media outlets repeatedly complained that Libor rates were not reflecting the near shutdown in unsecured lending.
Some suggested that banks were “lowballing”, or understating, their daily estimates of the rate at which they could borrow in order to reassure the market of their financial strength.
Bob Diamond, Barclays chief executive, went further in a letter to parliament, saying his bank “raised issues” with the Bank of England, the FSA, and the US Federal Reserve, as well as the British Bankers, Association, which sponsors Libor.
He also wrote that his bank had lowered its Libor estimates “to protect the bank” from “inaccurate speculation” that it was experiencing liquidity problems.
Barclays’ settlement with the CFTC quotes a manager from the bank talking about the issue to the FSA in 2008 during a call about liquidity.
“To the extent that, the Libors have been understated, are we guilty of being part of the pack? You could say we are . . . I would sort of express us maybe as not clean clean, but clean in principle,” the settlement quotes the manager saying.
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Lol… look out, Richmond!
http://www.youtube.com/watch?v=tVEPvXBEOSE&feature=player_embedded
Easy come, easy go.
Features
John Paulson’s Very Bad Year
By Sheelah Kolhatkar on June 28, 2012
John Paulson, the founder of Paulson & Co., one of the world’s largest hedge funds, has close-cut black hair, dark eyes, and a soft voice. There’s a fuss when he arrives, befitting a man who made one of the biggest fortunes in Wall Street history, as his general counsel and PR consultant jostle for seats next to him. Paulson’s decision to buy credit-default insurance against billions of dollars of subprime mortgages before the market collapsed in 2007 earned him almost $4 billion personally and transformed him from an obscure money manager into a financial legend. Then came the kind of disastrous run that can unmake a career. In 2011 he lost billions.
“We clearly stumbled last year,” Paulson says. “We became overconfident as to the direction of the economy and took a lot of risk.”
On this June afternoon, Paulson, 56, sits in his midtown Manhattan offices, surrounded by his dozen or so Alexander Calder watercolors, which serve as a kind of millionaires’ wallpaper in primary colors. The space is not the high-tech cockpit one imagines for a financial wizard at the levers of the world’s money flow. Rather than wall-to-wall monitors and global heat maps, it’s all cream carpeting and beige walls and looks like it could belong to any boutique real estate firm or law office, albeit one with a compulsive neat freak at the helm. Relatively speaking, it’s a soothing place to confront questions about the incredible power and wealth one can amass on Wall Street, even as the rest of the economy struggles; the controversial means sometimes used to achieve it; and how it’s possible to lose so much money so quickly.
Persuading Paulson to discuss these issues is not easy. “I avoid the media,” he says, which is an understatement. While many people beyond finance have heard his name, he has never given a television interview, and he says people rarely recognize him on the street, which he appreciates. Although, he adds, “I’m not sure that actually helps me. Not participating might make the media more interested.”
After his success in 2007, the amount of money in his funds grew to more than $30 billion. Things went swimmingly until 2011 came along. His two largest funds, Paulson Advantage and Advantage Plus, lost 36 percent and 52 percent that year, and the red streak has continued into 2012, with Advantage and Advantage Plus down 6.3 percent and 9.3 percent as of the end of May.
Paulson is trying to project optimism. “I think we’re back on track,” he says, “and I’m actually quite excited about our portfolio.”
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The Rise of China
Chinese manufacturing continues to slump
@CNNMoney July 1, 2012: 8:20 AM ET
NEW YORK (CNNMoney) — China’s manufacturing sector is still expanding, but barely.
The National Bureau of Statistics in Beijing said Sunday morning that the China Manufacturing Purchasing Managers Index for June fell to 50.2 from 50.4 in May. Any reading below 50 signals contraction in the manufacturing sector.
The good news is that economists had been expecting the numbers to be worse. According to a report from emerging markets analysts for Barclays in Hong Kong, the consensus was for the PMI figure to hit 49.9.
Nonetheless, the latest figures are still a bit worrisome. The report from the Chinese government follows a preliminary measure of purchasing managers’ sentiment for June from banking giant HSBC on June 22. That report shows that manufacturing reached a 7-month low.
The HSBC flash reading of its Chinese manufacturing purchasing managers’ index dropped to 48.1 in June from 48.4 in May. The final figure for June from HSBC will come out on Monday.
China’s central bank cut interest rates in early June for the first time since 2008. Many economists are predicting that the People’s Bank of China may need to continue lowering rates.
While China’s economy is still expanding at a rate that is the envy of the developed world — gross domestic product rose at an annualized 8.1% in the first quarter — there are concerns that the debt crisis in Europe is hurting China. The eurozone is China’s largest export market.
Along those lines, the Chinese government noted in Sunday’s PMI report that there was a sharp drop in new export orders in June.
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Obama still on track for electoral victory
By Charles Riley
June 29, 2012: 5:00 AM ET
President Obama is still on track for an electoral victory this November, according to a forecasting model produced by Moody’s Analytics.
But his advantage over Mitt Romney is narrowing. According to the model, which produces a state-by-state prediction based in part on the latest economic data, Obama is on track to capture 303 electoral votes.
That’s more than the 270 required for victory, but if economic growth slows further, the model could easily shift.
In May, the economy added just 69,000 jobs. And revisions from previous months showed the economy gained 49,000 fewer jobs in March and April than originally thought.
Moody’s lowered its growth forecasts for the year as a result of the dour economy data. In the model, Obama’s electoral vote‐weighted share of state popular votes dropped to 51.98%, down from 52.17% the previous month.
According to the model, Obama is likely to hold onto the key battleground states of Virginia, Ohio, New Hampshire, Colorado, Nevada and Pennsylvania.
But states like Florida (29 electoral votes) and North Carolina (15 electoral votes) are likely to turn from blue to red.
According to Moody’s, Obama’s lead is narrowest in Virginia and Ohio, where he is projected to capture 51.6% and 51.9% of the vote. Should those two states flip, Obama’s electoral vote count would be released to 272 — in other words, an extremely narrow victory.
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BUSINESS
Updated July 1, 2012, 3:52 p.m. ET
BofA’s Blunder: $40 Billion-Plus
By DAN FITZPATRICK
At one time Bank of America thought it was picking up Countrywide Financial for the bargain price of $2.5 billion. WSJ’s David Benoit stops by Mean Street with figures indicating the purchase might be the worst deal ever made. Photo: Getty Images.
Bank of America Corp. (BAC +5.68%) thought it had a bargain four years ago when it paid $2.5 billion for tottering mortgage lender Countrywide Financial Corp. But the ill-fated decision has already cost the Charlotte, N.C., lender more than $40 billion in real-estate losses, legal expenses and settlements with state and federal agencies, according to people close to the bank.
“It is the worst deal in the history of American finance,” said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. “Hands down.”
The acquisition of Countrywide, which was completed almost exactly four years ago, turned Bank of America into a huge mortgage lender just as the U.S. housing market collapsed.
Of all the purchases Bank of America made during its two-decade-long climb to the top of the U.S. banking heap, the takeover of Countrywide has spawned more regret inside the company than probably any other acquisition by former Chief Executive Officer Kenneth Lewis or his predecessor, Hugh McColl.
Bank of America Chief Executive Brian Moynihan, right, and his predecessor, Kenneth Lewis, shown in 2009.
Current Chief Executive Officer Brian Moynihan, who took over in 2010, has acknowledged that his bank purchased Countrywide “just when you shouldn’t have done it.” At the time of the takeover, Mr. Moynihan was running Bank of America’s investment-banking unit.
“Obviously, there aren’t many days when I get up and think positively about the Countrywide transaction,” Mr. Moynihan said in August 2011.
Countrywide, founded 43 years ago, became the nation’s largest originator of home mortgages under the leadership of co-founder Angelo Mozilo, the son of a Bronx butcher. Mr. Mozilo emerged as one of the most vocal advocates for homeownership during the company’s rise but turned the company into a pioneer of subprime and adjustable-rate mortgages that were some of the worst made during the housing boom. Once some of those mortgages started to go bad, he sold a $2 billion stake to Bank of America in 2007 and agreed to sell the rest in January 2008. The deal closed on July 1, 2008.
Bank officials say they finally have their arms around the many problems spawned by Countrywide and that it won’t get much worse. Indeed, hopes that the worst is behind it on Countrywide and other fronts has propelled Bank of America’s shares to a gain of more than 40% this year, making it the best-performing stock in the Dow Jones Industrial Average.
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“It is the worst deal in the history of American finance,” said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte.
You heard it here on the HBB first; we ridiculed this move immediately when it was announced.
It’s mind-blowing, how the titans of finance could be either so clueless, or so corrupt. I say corrupt, because one of our theories that attempted to explain the apparent insanity at the time was that BAC might have been arm-twisted into the transaction to avoid a Countrywide BK… If so, that’s a clear breach of fiduciary duty to the shareholders of BAC.
BofA and Countrywide: Worst. Deal. Ever?