Housing/Mortgage/Real Estate

[G M]

I hope PP weighs in, but it's my understanding that a good portion of those sales of existing homes were repos being bought for pennies on the dollar. If so, that's not exactly a recovery.

[G M]

http://www.zerohedge.com/news/youwalkawaycom-bringing-moral-hazard-deadbeat-near-you

YouWalkAway.com: Bringing Moral Hazard To A Deadbeat Near You
Submitted by Tyler Durden on 09/21/2011 00:19 -0400

default Demographics Fox Business Housing Market Moral Hazard Reality RealtyTrac RealtyTrac Unemployment


Tonight's feel-good story of our time is a desperate stroll through the reality of the US housing market for millions of individuals (as opposed to the hope-driven must-say-something-positive spin the home-builder CEOs have been spewing recently). Notices-of-default jumped 33% in August, a nine-month high and largest month-over-month increase since August 2007 and it is becoming increasingly acceptable to walk away from contractual agreements as strategic default becomes the New American Dream.

Fox Business runs the story: The New Face of Foreclosure: Strategic Defaults:

"There are 3 million to 4 million seriously delinquent mortgages that under normal circumstances would be in foreclosure but have been kept out by procedural delays and paperwork problems," says Rick Sharga, RealtyTrac senior vice president. The recent spike in foreclosure starts suggests lenders are "hitting the restart button" on cases that were delayed by documentation problems such as robo-signing, he explains.

 

YouWalkAway.com surveyed several hundred of its clients earlier this year, and just 23% said they had previously shirked a financial obligation. "The people we are now seeing are nearing retirement age, who never missed a payment on anything in their lives," says Jon Maddux, co-founder and CEO of the Carlsbad, Calif., firm. "They are trapped. They can't sell or get a modification and they need to downsize or move for a job."

 

Attitudes toward default have also shifted, Maddux says. "Back in 2008 people were very emotional, very scared, in disbelief or denial," he says. "Now they are simply fed up. It's a very calculated, black-and-white business decision. People feel very relieved."

 

A more widespread understanding of the consequences of default may be a factor, says Brent White, a University of Arizona law professor and author of Underwater Home.

And an example of the justification - for better or worse:

"I was looking for a way to get back to a larger city, and this was the only way I could get out of this house," says Kessler, who paid $800 to YouWalkAway.com to help guide him through the process known as strategic default.

 

"I don't feel guilty at all about walking away from the place," he says. "The banks really did it to themselves. They made a ton of money with me over the years. I owned four or five houses. But I don't think I'll ever buy another house. I'll probably just rent until they put me in a nursing home."

So, we have dramatically bad unemployment in the youngest age demographic, middle-age demographics have seen net worth crushed in the last few years and are lucky to have a job, and now the elder demographic is increasingly opting for strategic default. All-in-all, not such a rosy picture (but but corporate profit margins are at record highs).

[ppulatie]

I'm back.

I do expect interest rates to go lower.  I would expect that we shall see 3.5% par within a few months, and eventually see close to 3%.  The problem is that the lower rates will not achieve what is hoped.

Traditionally, lower rates meant that home values would increase, so this would be a measure to try and prop up home values.  Also, it is thought that lower rates would bring more buyers into the market.  But for potential home buyers, on a $200k loan, a decrease of 1% in interest rates would change a monthly payment by $119 per month.  This is an insignificant amount and will have little or no effect to home purchases.

Here is the real reason for decreasing rates.  Right now, 75% of Fannie and Freddie loans are above 5%.  Due to income issues, loan to value issues, and credit, these homeowners cannot refinance to lower rates currently in effect.

The new Refinance Program being pushed by Obama is aimed at eliminating this problem.  There will be no income verification, no loan to value restrictions, and the only credit restriction is to be "up to date" on your mortgage for the last three months.  If you meet the credit restriction, then you can qualify for the new program.

Dropping interest rates before the new program takes affect would offer an added benefit of lower rates.  People in the 4's would consider refinancing as well.  The end result is that this would be an "incredible" stimulas program for the economy.  But, there are problems with this.

The bond investors are the ones who will take it in the shorts.  Their bonds will be "retired" from the refinances. Instead of returns in the 4-5's, they will be faced with returns in the low 3's.  Would they want to buy the bonds with such a rate of return?

Even worse for the investors, the refinances will be far riskier.  No income verification, no loan to value restrictions, and no real credit review would eliminate the key to determining loan repayment ability.  So the risk level is dramatically increased.

But, that is not all.  125% loan to values and above are not acceptable for normal GSE bonds.  A separate bond issue must be done for those loans only.  All the parameters for the loans are disclosed, so an investor knows what he is getting before he buys.

The government is banking on selling these bonds because they assume that there are buyers for riskier investments.  But, how much return can reasonable be expected when interest rates are in the 3's. 

125% and above loans are defaulting at 50% rates over time.  That means these bonds are going to be incredibly risky and will suffer large default percentages, even with the lower interest rates and payments.  Who would want these bonds without government guarantees of no losses.

Finally, this program would at some point in time be "opened" for non GSE loans that met GSE requirements at origination.  When refinanced, they would be "new GSE loans".  So, private investors are taken off the hook for these loans, and the government and taxpayers would be the ones to lose in any defaults. 

See any problems with what is proposed?

[G M]

See any problems with what is proposed?

I'm sure it'll work out as well as all the other gov't interventions in the market......   

So what's your take on the alleged 7.7 % rise in existing home sales?

[ppulatie]

Those are all National Association of Realtor figures.  Since Feb, the NAR has been in the process of "changing" their methods of calculating home sales because of differences between them and Corelogic numbers.  There is about a 33% to 45% difference, with the NAR numbers being significantly higher. 

Most people in the industry go with Corelogic numbers, unless they are realtors. 

Of course, realtors and loan brokers never lie, do they?  After all, they are telling us that it is a "great time to buy".  Heck, they were saying that in 2008, 2009, and 2010, when values were still falling.

[ccp]

thanks PP

[Crafty_Dog]

WSJ

State Attorneys General were shocked—shocked!—to discover sloppy foreclosure practices last year in the wake of the housing boom and bust, and they have used that revelation to try to squeeze billions of dollars out of the nation's largest banks. Here's a bigger scandal: Fannie Mae knew about the problem years ago.

In a report issued Friday to little media notice, the Inspector General for the Federal Housing Finance Agency (FHFA) found that "in 2005, Fannie Mae hired an outside law firm to investigate a variety of allegations referred by one of its investors regarding purported foreclosure processing abuses and other matters." The next year the law firm reported back that some practices, such as filing false paperwork, were "unlawful" and should stop, and it noted that Fannie was implementing a computer system to improve oversight of its foreclosure processing attorney network.

So far, so good—except for what didn't happen next. The IG says that neither Fannie nor its regulator FHFA acted on the 2006 report, and the computer system also didn't materialize. FHFA "examination officials" only learned of the report's existence in March after reading an article in this newspaper.

The IG's report again highlights the loose rules that Fannie and Freddie Mac operated under during the housing boom. Fannie "placed a higher priority on meeting specific earnings goals than it did on ensuring proper accounting, risk management, internal controls, and complete and accurate financial reporting," the IG report recalls from a prior review.

In a letter responding to the IG, FHFA Associate Director Elizabeth Scholz mused: "An effective operational risk program would not have prevented servicing personnel and licensed attorneys from engaging in improper, unethical or fraudulent practices." Maybe not, but since we're talking hypotheticals, wouldn't better oversight of foreclosure practices have helped mitigate the problem?

So far no one has uncovered evidence that banks kicked nondelinquent borrowers out of their homes, despite robo-signing and other sloppy paperwork. Surely the practices of Fannie and Freddie deserve equal scrutiny.

[JDN]

"Uncle Sam is about to take a first tentative step out of the mortgage business by lowering the size of home loans that the federal government will guarantee."

Can someone explain to me why Uncle Sam is in the mortgage business in the first place?  If you are not qualified for the loan without a government guarantee, maybe
you shouldn't borrow the money   

http://www.latimes.com/business/la-fi-loan-limits-20110927,0,7797548.story

[ppulatie]

There is so much "disinformation" about the foreclosure crisis being propagated that it is not possible for the layman or even the "semi-versed" person to distinguish between fact and fiction.  The legal issues involved, combined with the "sensationalism" of the stories, and the vocalism of the homeowner advocates, make for a breeding ground for all sorts of opportunists, AG''s included.

The AG's have taken up the legal battle only because of the 2012 elections coming up.  They are all political animals that are looking towards reelection, or higher office. Much of their motivation also includes the money to be made by settlements that would go into government coffers.

Much of what has been alleged to be unlawful, is not so.  MERS has agency relationships with lenders, and can execute documents legally.  The assignments of MERS are lawful.

"Back-dated" assignments, as is alleged by many is simply not true.  Claims are made that when the assignment is executed prior to foreclosure, it has been "back-dated" to the closing date of the Trust.  This is simply a distortion of the truth, when one considers the Uniform Commercial Code, the Pooling and Servicing Agreement, and the MERS relationship.  The problem is that even the lender's attorneys do not understand all the concepts and therefore, they fail in arguments before the Court, and in doing so, allows for some bad rulings from the court.

Some issues are certainly problematic.  An example is that in the Judicial Foreclosure states, the person signing the Court Filing must have "personal knowledge" of the events to which he is signing for, i.e. the loan being in default.  But, what is the standard for personal knowledge?

By the time the person is ready to sign the affidavit, the foreclosure status has been seen by the servicer, Trustee, and the law firm.  Several people have looked at the documents related to the foreclosure.  But if the person who signs for the law firm has not inspected the documents, then the foreclosure filing is fraudulent according to many.  

Some courts have ruled that even viewing the servicing history on a computer screen or computer printout is not a factual basis for personal knowledge and therefore the filing is fraudulent.

The article notes that lenders have not foreclosed upon anyone but homeowners in default.  (This is untrue.  There have been a few recorded cases, but this is statistically miniscule, and when it happens, it is easily remedied.)  This poses the question:

If a homeowner is in default, and he has not been financially harmed by the foreclosure "deficiency", then should the deficiency matter?  Most courts take the viewpoint of "No Harm, No Foul".  The homeowner has not paid the mortgage for several months, and therefore, making the foreclosure be redone will only benefit the homeowner by 3 months of extra time in the home without paying, and would not affect the ultimate foreclosure.

Homeowner attorneys actually sell their services by telling a homeowner that even if you do not win, we can stall the foreclosure for a year or more.  (Of course, that means that the attorney is collecting monthly fees for the practice.)  This is where much of the problem comes from.

You may have read about the new Foreclosure Program that the banks are implementing as a result of the OCC Consent Decree.    

http://online.wsj.com/article/BT-CO-20110919-708947.html

Here is my analysis.

The OCC and the lenders are now preparing the “Foreclosure Review” process as dictated by the OCC Consent Decree.  This allows any homeowner foreclosed upon in 2009-2010 to file a complaint for unlawful foreclosure and to have it reviewed by the selected Third Party.  The foreclosure of the homeowner will be done to determine if the homeowner suffered financial losses through "errors, misrepresentations and deficiencies" in the foreclosure process, and what, if any damages are warranted.  Each foreclosure would need to comply with specific state and federal laws.

The program will be a complete boondoggle, a total public relations nightmare for the lenders, servicers, and the OCC.  If the results of a review are provided in detail to the homeowner, then this will lead to attorneys seeking remedies through the courts, if damages are not found for a deficient foreclosure process.  The complaints will be endless.

Most of the problems will come from the homeowner having a “distorted” view of what is lawful and not lawful.  The distortion is based upon media reporting, internet rants and homeowner advocates and attorneys.

Homeowners will be demanding foreclosure reviews based upon MERS, securitization, proof of legal standing, “Prove the Note” scenarios, and robo-signing.  They will contest Assignments off Beneficiary, and Substitutions of Trustees. Most of their “arguments” will have no legal basis, and when the foreclosure is claimed to be lawful, the homeowners will not accept the ruling.  Even when there are deficiencies found, usually of which will be Assignment or Substitution issues, the final ruling will come down to how the homeowner was financially “harmed”.

“Harm” and “damages” will be the most difficult part for the homeowner to understand, if deficiencies or defects in the foreclosure process are found.  What conditions must be present to show “financial harm”?  A homeowner assumes that they were “harmed” by the foreclosure and that will be their claim, but therein lies the problem for the homeowner.

Almost always, a defect or deficiency in the foreclosure process can be easily corrected.  If the correction had been made during the foreclosure process, it would only have delayed a foreclosure from one to four months, in most cases.  If a homeowner has not made a payment in six months or longer, has the homeowner suffered any “harm”?  

One could say that the homeowner might have remained in the home longer, payment free, but would this meet the standard of harm?  Would the lender have an obligation to “pay damages” in the amount of “housing costs” for the months that homeowner could have remained in the home, free of charge?  My opinion would be that the homeowner was not harmed by the defect.

Where harm could be alleged is if the homeowner was foreclosed upon due to a "dual track" foreclosure process.  If the homeowner was in the process of attempting a loan modification and a foreclosure occurred, (dual track foreclosure) then it is possible that harm has occurred.

Many homeowners are already engaged in legal actions caused by “dual-track” foreclosures.  There have been good “initial results” in some cases, and there have been “lender friendly” results in many other cases.  Results depend upon the circumstances of each individual case and the documentation to support the claims.

Addressing any “dual track” claims in the review process will prove to be problematic.  One consideration will be whether the borrower could actually qualify for a modification.  If it was obvious that the borrower could not qualify for a reasonable loan modification, was the borrower “harmed” by the foreclosure?  And, what determines a “reasonable loan modification”?

Assuming that a reasonable loan modification could be made, what would the damages be?  If equity existed in the home, there may be a claim for damages in the amount of the equity.  If the home was underwater, then such a claim could not exist.

If a claim was made for the loss of the home and the resulting “rental payments”, then what claim would exist for rental payments that were less than the mortgage loan payments?  Add in six months or more of defaulted payments on the loan, and an argument could be made for no damages due.

Perhaps the only damage claim possible would be for the trial payments made by the homeowner while he was trying to negotiate a loan modification when the foreclosure occurred.

Finally, what about the home that has not been resold after the foreclosure?   If the home is still held by the bank, then there may be a chance of unwinding the sale, but would this even be worth doing if the home is underwater? Would a homeowner even want to try and move back in?  Perhaps if damages could involve a substantial principal reduction, then there might be an advantage to unwinding the foreclosure, but this should not affect that many homes.

(There will be some “legitimate” unlawful foreclosures found, but these will represent a miniscule amount of the foreclosures being reviewed.  Damages on those will be easy to determine and resolve. If the homeowner is not granted “satisfaction”, then the Review & Damages can be easily contested in court.)

As you can see, the Review Program is going to create an incredible amount of controversy.  Homeowners who are convinced that they have been wrongly foreclosed upon will not accept the Review Program’s conclusions.  They will simply claim that it is another “cover” for the lenders.

I predict that the program will only serve to further increase the controversy involving foreclosures, and more than likely, increased litigation.  The public relations aspect will be a nightmare, leading to more poor media coverage, and increased anger at the banks.

[ppulatie]

JDN,

The government got into the mortgage business in 1936, to promote housing recovery and foreclosure prevention during the Depression.  Since then, it has completely evolved.

In 1968, government mortgages were a major budgetary item.  To get it off the budget, Fannie was born, and then Freddie.  They were allowed to act on their own, by their own form of securitization.

By 1993, F&F owned a significant part of the mortgage market, based upon the guarantees.  F&F became political animals with the goal of being for all purposes, the primary, and pretty much sole provider of mortgages in the US.  With the help of politicians and government guarantees, they held 60% of the market by 2006, and including VA and FHA, 95% of the market now.

For the last 20+ years, the government has needed F&F to do mortgages.  That is because manufacturing in the US had been falling, and housing was one of the few wealth creation industries left in the country.  With housing came durable goods sales, home furnishings, construction, infrastructure, schools, etc.  This propped up the failing economy.  And, it led to revenues in stated, county, city and federal budgets.

Now, the government is engaged in trying to keep the economy going by restarting housing.  Of course, their efforts are failing because housing is simply not affordable, an excess or housing units exist, and people are too debt burdened to buy homes.

The drop in the maximum value for Fannie and Freddie loans will only apply to a few areas and states.  It will mean very little overall in the scheme of things.

If one could look at Fannie and Freddie loans, you would likely find that there are very few loans being done in the monetary range where the reduction is occurring.  That is because of three factors: 

Home values have fallen below the range in most areas.
Those who could have taken advantage of refinancing opportunities have done so.
For those who could qualify to buy, banks would be loaning to them.

This is simply another public relations ploy for F&F and the government.

[ppulatie]

Case Schiller reports that home values are down to year 2000 levels.  Using CPI, less shelter, 1999 levels.  We have lost ALL appreciation for a decade, and more to come.

Corelogic reports 1.6m homes 90 days or more late and REO's.

Corelogic ignores the homes less than 90 Days late, which is approximately 5.6 million.  90% of these will be lost to foreclosure.

I will be in court testifying as an Expert Witness tomorrow and Thursday in a Predatory Lending case.  Absolutely the worst case of Broker Fraud I have ever seen.  Will give you details after this is over.

BTW, the defendent's attorney absolutely hates me.  He tried to get me dismissed as a Witness after getting my Discovery documents.  I absolutely nail the broker to the wall.

[Crafty_Dog]

BTW, and unrelated to what follows, foreclosures in CA are way up.
=================================

Data Watch
________________________________________
Housing starts surged 15.0% in September to 658,000 units at an annual rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/19/2011
Housing starts surged 15.0% in September to 658,000 units at an annual rate, coming in well above the consensus expected pace of 590,000.  Starts are up 10.2% versus a year ago.
The gain in September was mostly due to multi-family starts, which are extremely volatile from month to month and which were up 51.3%. Single-family starts rose 1.7%. Multi-family starts are up 55.3% from a year ago while single-family starts are down 4.9%.
 
Starts rose in all regions of the country with the West seeing the biggest gains up 18.1%.
 
New building permits fell 5.0% in September to a 594,000 annual rate, coming in below the consensus expected pace of 610,000. Compared to a year ago, permits for multi-unit homes are up 11.3% while permits for single-family units are up 3.5%.
 
Implications:  Home building soared 15% in September, bouncing back after the unusually harsh weather we saw in August, coming in at the highest level since April 2010.  However, most of the increase was due to a 51.3% spike in multi-family units, which are volatile from month to month. The general trend in multi-family units should continue to go higher given the movement away from owner-occupancy and toward rental occupancy. To help show this, 5 or more unit completions were up 43.4% in September. Another positive from today’s report was that although single-family homes under construction hit a new record low, total homes under construction increased for the second time in three months. This is only the second time homes under construction have increased since 2006! What this shows is that the bottoming process is happening and home building should trend higher over the next couple of years. After a large rise in building permits last month, permits fell 5% in September, but remain up 5.7% from a year ago.   Based on population growth and “scrappage” rates, home building must increase substantially over the next several years to avoid eventually running into shortages.

[Crafty_Dog]

Existing home sales fell 3.0% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/20/2011
Existing home sales fell 3.0% in September to an annual rate of 4.91 million units, matching consensus expectations. Existing home sales are up 11.3% versus a year ago.
Sales in September were down in the Midwest, South, and West, but up in the Northeast. All of the decline in overall sales was due to single-family homes. Sales of condos/coops rose slightly.
 
The median price of an existing home fell to $165,400 in September (not seasonally adjusted), and is down 3.5% versus a year ago. Average prices are down 2.5% versus last year.
 
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) ticked up to 8.5 from 8.4 in August.  The rise in the months’ supply was all due to a slower pace of sales. Inventories of homes for sale fell slightly.
 
Implications:  Sales of existing homes came in right as the consensus expected, falling slightly after the large increase in August. Sales have seemed to stabilize around a 4.6 to 5.0 million annual rate.  The National Association of Realtors said that cancelled contracts to buy existing homes increased to 18% in September from a more typical 9% - 10% over the past year. This might have been related to hurricane storm damage but also shows that credit conditions remain tough despite low mortgage rates. No wonder all-cash transactions accounted for 30% of sales in September, versus a traditional share of 10%.  While a large portion of sales came from distressed properties (such as foreclosures and short sales), this is necessary for inventories to continue to be worked off and for the housing market to ultimately recover.  The inventory of existing homes is down 13% in the past year and homes available for sale this September were at the lowest level for any September since 2005. In other news this morning, the Philadelphia Fed index, a measure of manufacturing activity in that region, increased sharply to +8.7 in October from -17.5 in September. The consensus had expected -9.4.  We believe the index was beaten down in prior months because of negative sentiment, not an actual drop in activity.  Now, with fears of a recession starting to decline, the index is getting back to normal, reflecting industrial growth. Also this morning, new claims for unemployment insurance declined 6,000 last week to 403,000.  The four-week moving average is also 403,000, versus 440,000 in May.  Continuing claims for regular state benefits increased 25,000 to 3.72 million.

[G M]

http://online.wsj.com/article/SB10001424052970203752604576641421449460968.html?mod=googlenews_wsj

HOMES OCTOBER 20, 2011.

Foreigners' Sweetener: Buy House, Get a Visa .

By NICK TIMIRAOS

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.

Supporters of the bill, co-authored by Sen. Charles Schumer, say it would help make up for American buyers who are holding back.
.
Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.


To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.

The measure would complement existing visa programs that allow foreigners to enter the U.S. if they invest in new businesses that create jobs. Backers believe the initiative would help soak up an excess supply of inventory when many would-be American home buyers are holding back because they're concerned about their jobs or because they would have to take a big loss to sell their current house.

"This is a way to create more demand without costing the federal government a nickel," Sen. Schumer said in an interview.

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

Foreigners immigrating to the U.S. with the new visa wouldn't be able to work here unless they obtained a regular work visa through the normal process. They'd be allowed to bring a spouse and any children under the age of 18 but they wouldn't be able to stay in the country legally on the new visa once they sold their properties.

The provision would create visas that are separate from current programs so as to not displace anyone waiting for other visas. There would be no cap on the home-buyer visa program.

Over the past year, Canadians accounted for one quarter of foreign home buyers, and buyers from China, Mexico, Great Britain, and India accounted for another quarter, according to the National Association of Realtors. For buyers from some countries, restrictive immigration rules are "a deterrent to purchase here, for sure," says Sally Daley, a real-estate agent in Vero Beach, Fla. She estimates that around one-third of her sales this year have gone to foreigners, an all-time high.

"Without them, we would be stagnant," says Ms. Daley. "They're hiring contractors, buying furniture, and they're also helping the market correct by getting inventory whittled down."

In March, Harry Morrison, a Canadian from Lakefield, Ontario, bought a four-bedroom vacation home in a gated community in Vero Beach. "House prices were going down, and the exchange rate was quite favorable," said Mr. Morrison, who first bought a home there from Ms. Daley four years ago.

While a special visa would allow Canadian buyers like Mr. Morrison to spend more time in the U.S., he said he isn't sure "what other benefit a visa would give me."

The idea has some high-profile supporters, including Warren Buffett, who this summer floated the idea of encouraging more "rich immigrants" to buy homes. "If you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you'd solve things very quickly," Mr. Buffett said in an August interview with PBS's Charlie Rose.

The measure could also help turn around buyer psychology, said mortgage-bond pioneer Lewis Ranieri. He said the program represented "triage" for a housing market that needs more fixes, even modest ones.

But other industry executives greeted the proposal with skepticism. Foreign buyers "don't need an incentive" to buy homes, said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. "We have a lot of Americans who are willing to buy. We just have to fix the economy."

The measure may have a more targeted effect in exclusive markets like San Marino, Calif., that have become popular with foreigners. Easier immigration rules could be "tremendous" because of the difficulty many Chinese buyers have in obtaining visas, says Maggie Navarro, a local real-estate agent.

Ms. Navarro recently sold a home for $1.67 million, around 8% above the asking price, to a Chinese national who works in the mining industry. She says nearly every listing she's put on the market in San Marino "has had at least one full price cash offer from a buyer from mainland China."

Corrections & Amplifications
Harry Morrison bought a four-bedroom vacation home in Vero Beach in March. He first bought a home there four years ago from Sally Daley, a local real-estate agent. An earlier version of this story incorrectly said Ms. Daley sold the four-bedroom home to Mr. Morrison in March.

Write to Nick Timiraos at nick.timiraos@wsj.com

[Crafty_Dog]

Research Reports
________________________________________
Housing At An Inflection Point To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 11/2/2011
Summary: The long awaited rebound in home building has finally started. Despite large remaining excess inventories, residential construction is poised to grow substantially over the next several years, just to get back to normal levels of building activity. In addition, home prices are at or very close to a bottom, at values that, relative to rents and construction costs, signal considerable appreciation in the years ahead.   
The excess inventory of homes remains enormous. From 1987 through 2001, the number of residents per home hovered narrowly around 2.42. Getting back to that level today would require the elimination of two million homes.
 
If this were all we knew about the housing market, we would have to conclude that national average prices have large further declines ahead.
 
But knowing the size of the excess inventory is only part of the story. To determine future price movements we also have to know how quickly home builders are adding to or subtracting from inventories. The reason should be clear: an excess inventory that is growing would signal lower future prices than an excess inventory that is shrinking.   
 
The US population age 25 and up is rising about 1.1% per year. (The overall population is growing slightly more slowly, about 0.9% per year, but residents below age 25 will not have much impact on the demand for homes in the next few years.) Applying the 1.1% to the 129 million homes we should have today suggests the underlying demand for new housing units is 1.4 million per year, for both owner-occupied and rented homes combined. In addition, the “scrappage” of homes due to disasters and “knock-downs” should create net demand of about 200,000 units per year, bringing annual total demand to 1.6 million.
By contrast, in the past year builders have started (and completed) fewer than 600,000 homes. The gap between total demand and the recent pace of construction puts us on track to eliminate the excess inventory in two years.
Click the link above to view the entire report.

[ppulatie]

Alright Crafty,

You force me to comment.  Let me take a sip of wine and I will start..........gulp....gulp....gulp.....now that is better!!!

Wesbury is an idiot.  Laurie Goodman with Amherst is about the best at evaluating this......besides me.  LOL.  (She misses some things that I find important, like credit quality, GSE lending, etc.)

Wesbury ignores the 6.5m homes that are currently delinquent on payments, of which 90% will be foreclosed upon.  This will add to inventory.  He also ignores coming price depreciation that even Fannie is now predicting to be about 6.7% this year, and about 7% next year.  This is in line with Case Shiller.  It will contribute to even more foreclosures.

The buyer pool is pretty much gone.  65% of all new purchases are FHA.  The loans represent above 95% loan to value for the most part, or there are credit issues that prevent GSE approval.  FHA loans now have a 16% default rate.

Yes, the 25 plus age bracket is increasing by 1.1%, but that includes everyone.  Age 25 - 34 is 40m total.   But the idiot fails to consider that there are over 40m people that are 60 and above.  "Ya think" that they might be downsizing, selling, moving into assisted facilities and other such things as they age and that will offset the gains?  And what about all the deaths to follow?

What happens when rates go up? Home values fall, leading to more foreclosures.  And where are the move up buyers who might buy the new construction homes?  There are few because of negative equity, and negative equity homes are predicted to go up to 52% of the total in the next couple of years.

There were 313,000 new home sales, seasonally adjusted in Sept 11.  This is the worst since records were kept, starting in 1966.  And, in 1966, the population of the US was 187m.

Family creation units is usually about 1.2 million, but over the past 3 years, it has been 400-500k.  Plus, family units are decreasing because families are living together to "survive" the economic conditions.  This is especially so with foreclosure victims.  Where will the buyers for new homes come from.

The 25 plus crowd that Westbury counts on are heavily burdened with both revolving debt and student loan debt.  Plus, real wages are decreasing.  How will they afford homes?  Especially when interest rates increase?

What happens when the Fed quits buying GSE loans?  There is no demand left.  After all, the coupon rate on new GSE loans is about 3.12%.  When the Fed buys loans, where does the money go that the investor was paid when the loan was retired?  Not to a new loan with all the risk.  Try the stock market.

Remember, Wesbury is an advisor to the Chicago Fed.

[ppulatie]

BTW, CD's posting was timely.  I am currently doing a White Paper on just this subject.  I have probably about 2 weeks left of work on it.

Here is my latest White Paper.  It is sure to tick people off.  But, it is needed.  I make a compelling argument that recording processes in the US are hopelessly outdated, and that a MERS like entity, working in conjunction with recorder offices is sorely needed.  But, the paper will not be received well by homeowners and attorney fighting foreclosures.

http://lfi-analytics.com/home/a-working-paper-recording-issues-and-mers/

[G M]

"Wesbury is an idiot."


Heh. 

[Crafty_Dog]

Housing starts fell 0.3% in October to 628,000 units at an annual rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 11/17/2011
Housing starts fell 0.3% in October to 628,000 units at an annual rate, but still came in above the consensus expected pace of 610,000.  Starts are up 16.5% versus a year ago.
The slight decline in starts in October was all due to multi-family units, which are extremely volatile from month to month. Single-family starts were up 3.9%. Multi-family starts are up 88.6% from a year ago while single-family starts are down 0.9%.
 
Starts rose in all regions of the country except in the West, which fell 16.5%.
 
New building permits increased 10.9% in October to a 653,000 annual rate, coming in well above the consensus expected pace of 603,000. Compared to a year ago, permits for multi-unit homes are up 48.0% while permits for single-family units are up 6.6%.
 
Implications:  The long-awaited rebound in home building has finally begun. In the past four months, the total number of homes under construction has increased three times. This is a major break from the recent past. From 2006 through four months ago there had been no increases at all. So far, the gains have been due to multi-family construction, particularly buildings with 5 or more units. However, we are now seeing signs that single-family construction is starting to stir. Although the number of single-family homes under construction hit a new record low in October, single-family starts were up 3.9%. Moreover, single-family completions increased 7.1%, which contributed to the drop in the number still under construction. Multi-family starts fell 8.3% in October, but given the general trend away from owner-occupancy and toward rental occupancy, multi-family units should continue to trend higher. Permits for multi-family construction are now the highest in three years. Based on population growth and “scrappage,” home building must increase substantially over the next several years to avoid eventually running into shortages. For more on the housing market, please see our recent research report (link). In other news this morning, new claims for unemployment insurance declined 5,000 last week to 388,000.  The four-week moving average is 397,000 versus 440,000 in April/May.  Continuing claims for regular state benefits fell 57,000 to 3.61 million.  Looks like another month of respectable job growth in November.

[G M]

I'm betting Pat does not agree.

[Crafty_Dog]

I'll not take the other side of that bet 

I have an email in to him asking for his comments.

[G M]

http://bottomline.msnbc.msn.com/_news/2011/11/17/8859967-foreclosure-crisis-only-about-halfway-over

Foreclosure crisis only about halfway over




Renzo Salazar, from Real Signs of Ace Post Holding Inc., places a bank owned sign on top of a for sale sign in front of a foreclosed home on November 10, 2011 in Miami, Florida.

By John W. Schoen, Senior Producer

If the U.S. foreclosure crisis were a baseball game, we’d probably be in the bottom of the fourth inning.

That’s roughly the message from the latest data on home foreclosures and delinquencies released by an industry association Thursday.

The pace of new home foreclosures edged up again in the third quarter and the number of borrowers falling behind on their payments eased a bit, according to the Mortgage Bankers Association. The good news was that the rate of borrowers who have fallen three or more months behind on their payments has dropped to about 3.5 percent of all mortgages. That’s down from a peak of 5 percent in late 2009. But it’s still three and a half times the “normal” rate of about 1 percent that prevailed before the mortgage meltdown hit in late 2007.

“If you look at the pace of improvement I think we’re three to four years away from the typical pattern of seriously delinquent loans," said Michael Fratantoni, MBA's vice president of research and economics.

 

Since the mortgage meltdown began in 2007, roughly six million homes have been lost to foreclosure. (Estimates vary somewhat because multiple foreclosures are often recorded on a given property as the homeowner and lender try to avoid it.) Another four million homes are estimated to be at some stage in the foreclosure process. New foreclosures are currently started at the rate of about two million a year.

That pace of new foreclosures may begin to ease more, though. The delinquency rate –- the number of borrowers who have fallen behind on their payments -- fell in the third quarter to the lowest level in nearly three years. For all loans, the rate fell to 7.99 percent from 8.44 percent in the second quarter. That’s down from 9.13 percent a year ago and the lowest level since the fourth quarter of 2008.

Borrowers with subprime adjustable mortgages saw the biggest jump in new foreclosures in the third quarter. Some 4.65 percent of those subprime loans entered the foreclosure pipeline. That's up from 3.62 percent in the second quarter, a 28 percent increase. The MBA said the rise was due in part to an increase in the number of loans that failed to get lender approval for a modification. Some states also ended their moratoriums on foreclosures during the quarter. Overall, the pace of new foreclosures for all loans edged up to 1.08 percent in the third quarter from 0.96 percent in the prior three month period. That’s down from 1.34 percent in the same period a year ago.

A lot depends on the outlook for the economy which, though showing gradual signs of improvement, is not creating jobs fast enough to put much of a dent in the unemployment rate, which is hovering at around 9 percent.
 

The uptick in the pace of foreclosures comes as the U.S. homebuilding industry is beginning to show a pulse three years after nearly shutting down. Though still on track this year to set a record low since 1960, when data were first collected, single family housing starts were up 3.9 percent, and permits jumped 10.9 percent. (Many economists believe permits are a better barometer of housing market strength because they are less affected less by weather and signal a pickup in future construction.)

“This was a good report," said Patrick Newport, an economist at IHS Global Insight. “It has supporting evidence that the single-family market is finally getting off the mat.”

Continued improvement in home sales and prices, though, will depend heavily on the volume of foreclosed homes coming back on the market. Thursday’s MBA data showed that lenders have barely made a dent in the overall backlog of foreclosed homes. Since it began rising in 2007, the foreclosure inventory rate -– the percentage of loans in foreclosure -– has remained stuck at roughly 4.5 percent. That’s four and a half times the “normal” rate of about 1 percent of all homes in the foreclosure pipeline.

Not all of those homes will eventually be seized. Some foreclosures can be “cured” with a loan modification or by a homeowner catching up on missed payments.  But the remainder will sit on a lender’s books until they can find a new buyer, often at a “distressed” price. Each new home that enters the foreclosure pieline becomes part of that “shadow” inventory.

“The large number of homes still in the shadow inventory will cast a cloud over the housing market and the wider economy for a few years yet,“ said Paul Dales, a senior economist at Capital Economics.

Dales figures there were something like 4.2 million homes waiting to hit the market at the end of the third quarter. As they do, they’ll continue to depress home prices, which have begun falling again after stabilizing this summer. Falling prices put more borrowers at risk of foreclosing as they burn through the remaining equity in their home and end up “underwater,” owing more than their house is worth. Some 11 million homes, or about 22 percent of all mortgaged homes, are currently underwater. Another 2.4 million have less than 5 percent equity, according to CoreLogic.

[ppulatie]

GM,

You have me figured out already?

I do not like housing starts as an indicator of anything.  It is too volatile of a number, subject to many outside factors.  To provide some insight, here are housing starts over the past few years.

1991     1,014
1992    1,200
1993    1,288
1994           1,457
1995    1,354
1996    1,477
1997    1,474
1998    1,617
1999    1,641
2000           1,592
2001    1,637
2002    1,748
2003    1,889
2004    2,070
2005    2,155
2006    1,839
2007    1,398
2008       905
2009       583
2010            598
2011            628   seasonally adjusted

Housing starts are therefore up 30k from last year.  But, and a huge but at that, the starts are down 60% from typical yearly averages.  So historical trends show that housing is still in the dumpster.  But, that is not all.

2011 saw Joplin and Tuscaloosa hit by major tornados in Apr and May.  Other towns and cities were hit across the Midwest as well.  And flooding was rampant in some areas. Huge numbers of homes were destroyed or condemned.  Lag time from destruction to the beginning of rebuilding can be anywhere from three months or longer. 

It would be very interesting to be able to factor in the rebuilding of those communities to see how much affect that these efforts had the increase in housing starts.

Wesbury, like most others, assume that everything happens in a vacuum.  They don't allow for outside factors to influence what they would like to report.  Therefore, they examine data with an attitude of "confirmational bias".  In other words, they see the info that promotes their beliefs, and ignore any data that can contradict what they believe.

Forget Wesbury being an idiot. He is "intellectually dishonest" and a "fraud".

[ppulatie]

I will have more on the MBA report later for you.  I agree with some of what is said, but the quoted numbers are off.

[G M]

http://reason.com/blog/2011/12/01/federal-housing-authority-poised-to-re-s

Federal Housing Authority Poised to Re-Sink the Economy

Tim Cavanaugh | December 1, 2011


Back in the innocent days of 2007 or so, it was customary for experts to say that housing had led the recession and housing would lead us out. Whatever measure of truth there may have been in that cliché, the reality is that by refusing to accept the real estate correction as the healthful and decades-overdue solution it is, America’s leaders have created a new dynamic: Housing led us into the recession, and it continues to lead us into newer, deeper and more destructive recessions.
 
Last month Wharton School real estate finance professor Joseph Gyourko warned that the Federal Housing Authority is shaping up as the next likely target for a bailout. Although the full report [pdf] is worth reading, Gyourko’s central argument is pretty simple:
 

(1) FHA has become a much larger and riskier government entity since the housing crisis began because it has increased its risk exposure without anything close to a commensurate scaling up of its capital base; (2) it is underestimating future default risk and losses on its single-family mortgage guarantee portfolio by at least $50 billion;  and, (3) this should be corrected with an immediate recapitalization of FHA sufficient to compensate for the high risks it faces.
 
The FHA issued a rebuttal, noting that it had upped its assets by $400 million over the last year – a pittance, as Gyourko notes, compared to the $213 billion in new guarantees it issued over the same period.
 
We’ll just have to wait and see whether HUD Secretary Shaun Donovan ends up lassoing taxpayers to shore up the insolvent FHA, but one thing is for sure: Everything has gotten worse, and FHA’s policies have become even more reckless, since Gyourko’s report.
 
In the middle of the month, the Obama Administration even managed to walk back one of the few things it has done right: allowing the expanded conforming loan limit for “high-cost areas” to lapse. At the start of the real estate correction FHA upped its conforming loan limit (the mortgage amount the federal government guarantees) to $729,750. That emergency increase expired October 1, and the high-cost conforming loan limit dropped back to $625,500.
 
But in a tribute to the lobbying power of Realtors®, the conforming loan limit got jacked back up a few weeks ago. The move makes negative sense. (Why do you need to increase the subsidy when house prices continue to fall?) It’s also offensive to the broadly held belief that public assistance should be reserved for actual poor people: Presuming a 20 percent down payment, you’re talking about a house in the high $900k range being subsidized by taxpayers. Who mourns for the million-dollar starter home? Apparently we all do. 
 
It gets worse, however. In an email this morning, AEI Senior Fellow Edward Pinto, who has done crucial work on figuring out how the GSEs Fannie Mae and Freddie Mac defrauded taxpayers during the boom, reported on FHA’s recent financial deterioration:
 

•       In October 2011 17.02% of FHA loans were at some stage of delinquency.
 
–      Comparing October to September, FHA’s total delinquency (17.02% vs. 16.78%), 60-89 day (2.42% vs. 2.3%), and serious delinquency rates (9.05% vs. 8.77%) were all higher.
 
•       The increase in the 60-89 day rate is a leading indicator of future claims problems.
 
–      At 9.05%, the serious delinquency rate is now 0.8% higher than the 8.2% rate in June 2011 (Source:  HUD Neighborhood Watch and FHA Outlook Reports).
 
•       The June rate was used to prepare the recently released actuarial report.
 
–      As a result, there were about 75,000 more seriously delinquent FHA loans in October compared to June.   
 
•       The Actuarial Study notes that FHA’s forward single-family program has total capital resources of $28.2 billion offset by $27 billion in negative cash flows on its outstanding business (Study, p. 25).
 
–      This sounds reassuring; however a private company would be required to set aside this amount plus $13 billion more to cover expected losses from known 60+ day delinquent loans:
 
•       FHA is responsible for 100% of the losses on the loans it insures.  As a result its loss severities are extremely high.
 
•       In 2009 FHA experienced a 64% loss ratio (Study, p. E-2).
 
•       In October FHA had over 836,000 loans 60+ days delinquent with an estimated total outstanding balance of $117 billion (October 2011 HUD Neighborhood Watch).   
 
•       FHA would incur losses of $41 billion if 55% of these loans eventually go to claim and losses average 64% (calculation based on private mortgage insurance company reserving practices). 
 
•       This is $1.5 billion more than a similar calculation made for September. 2011.
 
–      FHA would need another $21 billion to meet its congressionally mandated 2% capital cushion.
 
Well maybe it’s darkest before the dawn. Or darkest before things go completely black. Or something. In any event, Lender Processing Services reports that the percentage of mortgages in foreclosure is at its highest level ever. “Foreclosure inventories are on the rise,” LPS writes, “reaching an all-time high at the end of October of 4.29 percent of all active mortgages.” LPS notes that lenders are still doing their best to drag out the foreclosure process:
 

The average days delinquent for loans in foreclosure extended as well, setting a new record of 631 days since last payment, while the average days delinquent for loans 90 or more days past due but not yet in foreclosure decreased for the second consecutive month.
 
That second part may actually be a small piece of good news if it indicates lenders are at least getting serious about getting foreclosures started. Housing won’t lead us out of the recession until the market hits rock bottom. Even Bob Shiller admits that we’re a long way from there. But we will get there eventually. It’s just a question of how long the feds want the torture to last.

[G M]

http://www.cnbc.com/id/45659547

Realtors: We Overcounted Home Sales for Five Years
Published: Tuesday, 13 Dec 2011 | 5:21 PM ET

Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

"All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought," NAR spokesman Walter Malony told Reuters.

"We're capturing some new home data that should have been filtered out and we also discovered that some properties were being listed in more than one list."

The benchmark revisions will be published next Wednesday and will not affect house prices.

Early this year, the Realtors group was accused of overcounting existing homes sales, with California-based real estate analysis firm CoreLogic claiming sales could have been overstated by as much as 20 percent.

At the time, the NAR said it was consulting with a range of experts to determine whether there was a drift in its monthly existing home sales data and that any drift would be "relatively minor."

The depressed housing market is one of the key obstacles to strong economic growth and an oversupply of unsold homes on the market continues to stifle the sector.

Malony said the Realtors group had developed a new model that would allow frequent benchmarking instead of waiting 10 years for the population Census data to revise their figures.

**I'm waiting for the Wesbury spin on this.

[DougMacG]

"All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought," NAR spokesman Walter Malony told Reuters.
---------
We should keep a count of large stories people would already know if they read the forum.  Something akin to the term bullsh*t comes to mind for what our expert thought of housing figures reported by the Realtors assn previously.

Nearly all economic data is wrong; people need to constantly look past and through data for the meaning.  Often it is Wesbury pointing that out.  Also Scott Grannis is excellent on that.  Measures like unemployment, inflation, poverty, or housing can only be watched for trends in a flawed measurement, not accuracy.
--------
My latest economic indicator is anecdotal.  A major residential window supplier, who sees investment into their existing homes as well as new construction, told me yesterday he has seen more improvement in the business in the last few months than in the last few years.  Keep in mind we are talking minor growth from unimaginable lows and the unemployment rate here is closer to 5%, half of the rate of the troubled areas of the country. http://www.bls.gov/news.release/metro.nr0.htm

[Crafty_Dog]

I see the FMs themselves have managed to get a deal for no punishment , , ,
======================

By CHAD BRAY And NICK TIMIRAOS
The Securities and Exchange Commission has sued the former chief executives of Fannie Mae and Freddie Mac, accusing them of misleading investors about risks of subprime-mortgage loans.

The lawsuits, filed in Manhattan federal court, also accused four other former executives at Freddie Mac and Fannie Mae of making false and misleading statements about the firms' exposure. The government took over Fannie and Freddie in September 2008 as investors pulled back from the firms, which took heavy losses on souring mortgages they guaranteed. Taxpayers have since provided $151 billion of support.

Former Freddie Mac CEO Richard F. Syron and former Fannie Mae CEO Daniel H. Mudd, are among the six executives. None of them has reached settlement agreements with the SEC.

Earlier this year, the SEC had sent Wells notices, indicating it planned to pursue enforcement actions, to Mr. Syron, Mr. Mudd and several other former executives. Those other executives were: Fannie's Enrico Dallavecchia, a former chief risk officer, and Thomas Lund, a former executive vice president; and Freddie's Patricia Cook, a former executive vice president and chief business officer; and Donald Bisenius, a former senior vice president.

The move came as Fannie Mae and Freddie Mac entered into agreements with the securities regulator to avoid civil prosecution. In the civil non-prosecution agreements, the firms said they would accept responsibility for the conduct and not dispute the SEC's allegations, without admitting or denying wrongdoing, the SEC said.

As part of those agreements, the government-sponsored firms will cooperate in the securities regulators' litigation against the former executives, the SEC said. Neither firm is paying a fine.

"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, director of the SEC's Enforcement Division.

"These material misstatements occurred during a time of acute investor interest in financial institutions' exposure to subprime loans, and misled the market about the amount of risk on the company's books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors."

The SEC alleged that the Fannie Mae executives misled the public about the government-sponsored firm's exposure to subprime mortgages and so-called Alt-A loans between December 2006 and August 2008. Freddie Mac executives allegedly did the same regarding its exposure to subprime loans between March 2007 and August 2008.

Lawyers for Mr. Syron and Mr. Mudd couldn't immediately be reached for comment Friday.

In its complaint against the former Fannie Mae executives, the SEC alleged that Fannie Mae, when it began reporting its exposure to subprime loans in 2007, broadly described the loans as being made to "borrowers with weaker credit histories" and that less than one-tenth of its loans that met that description.

The allegedly misleading disclosures were made as Fannie Mae was seeking to increase its market share through increased purchases of subprime and Alt-A loans and gave false comfort to investors about the extent of its exposure to high-risk loans, the SEC said. Alt-A loans are riskier loans for borrowers with good credit, but little documentation of income or assets.

The firm also reported that its 2006 year-end single-family exposure to subprime loans was just 0.2%, or about $4.8 billion, of its single-family loan portfolio, the SEC said. This was done with knowledge, support and approval of Mr. Mudd and other executives, the SEC said.

In its report, Fannie Mae didn't include loan products that specifically targeted borrowers with weaker credit histories, including more than $43 billion of so-called expanded approval loans, the SEC said. Company executives also underreported Fannie Mae's exposure to Alt-A loans, saying its exposure in March 2007 was 11% of its single-family loan portfolio when it was actually 18%, the SEC said.

In its Freddie Mac lawsuit, the SEC alleged that former Freddie Mac executives led investors to believe that the firm was disclosing all of its single-family subprime loan exposure and Mr. Syron and another executive publicly proclaimed that the single-family business had "basically no subprime exposure."

However, the single-family business, as of Dec. 31, 2006, had exposure to about $141 billion of loans that were referred to internally as "subprime" or "subprime like," or about 10% the portfolio, the SEC said. That grew to about $244 billion, or 14% of the portfolio, as of June 30, 2008, the SEC said.

Separately, Mr. Dallavecchia has stepped down as the chief risk officer of PNC Financial Services Group Inc. and is on administrative leave, the Pittsburgh bank said. Mr. Dallavecchia was chief risk officer at Fannie Mae from June 2006 to August 2008. Michael Hannon, currently PNC's executive vice president and chief credit officer, will become interim chief risk officer, PNC said.

[G M]

I see the FMs themselves have managed to get a deal for no punishment , , ,
======================

Of course, in our two-tier justice system under Obozo/Holder.....

[Crafty_Dog]

Housing starts increased 9.3% in November to 685,000 units at an annual rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/20/2011
Housing starts increased 9.3% in November to 685,000 units at an annual rate, blowing away the consensus expected pace of 635,000.  Starts are up 24.3% versus a year ago.
The large gain in starts in November was mostly due to multi-family units, which are extremely volatile from month to month. Single-family starts also rose 2.3%. Multi-family starts are up 145.4% from a year ago while single-family starts are down 1.5%.
 
Starts rose in all regions of the country, except the Midwest.
 
New building permits increased 5.7% in November to a 681,000 annual rate, coming in well above the consensus expected pace of 635,000. Compared to a year ago, permits for multi-unit homes are up 70.8% while permits for single-family units are up 3.6%.
 
Implications:  Great news! The turning point in home building has clearly arrived.  Homes were started at a 685,000 annual rate in November, while building permits hit a 681,000 annual rate. Both of these results easily beat consensus expectations and, except for one month affected by the homebuyer tax credit, are the fastest rates in three years.  The gain in starts in November was mostly due to multi-family units, which soared 25.3%. These starts might fall back next month, but, given the general trend away from owner-occupancy and toward rental occupancy, multi-family should continue to generally trend higher. Meanwhile, single-family starts were also up in November and the six-month average for starts has been moving up. Except for the artificial homebuyer credit, this is the first consistent upward trend since the collapse of building activity started in early 2006. Gains in starts are beginning to filter through to the number of homes under construction, which have gone up three months in a row. This is a major break from the recent past. From 2006 through five months ago there had been no increases at all. Based on population growth and “scrappage,” home building must increase substantially over the next several years to avoid eventually running into shortages. For more on the housing market, please see our recent research report (link). In other good news this morning, last week’s (same-store) chain store sales were up 4.6% from a year ago according to the International Council of Shopping Centers and up 3.4% according to Redbook Research.

[G M]

I'll be eagerly awaiting Pat's deconstruction of this nonsense.

[DougMacG]

Mixed news.  Good for employment, but the housing market needed stronger demand not increased supplies. 

When construction hit near zero, the percentage increases coming back look disproportionately dramatic.  He is reporting a .093 /12 monthly increase.  A 19 month high is in the context of more than 3 years at depression levels.  Maybe Bernancke will call it irrational exuberance.

[ppulatie]

Sorry about being late to the party.  Very busy at this time, but here goes on some comments.

Nov Housing Stats

The report identifies all growth occurring in the multi unit sector.  This would suggest that  builders and investors know that single family homes are still overbuilt, and are not expecting new family creation to add to the SFR market in the near term.


I took a look at the latest Housing Stats, and some observations:
•   As indicated in the article, Multi Unit Starts were the key reason for the increase in the number of new starts.  Why was the increase in Multi-Unit? 

My thoughts:  Dependent upon which source you use, the housing market is over built by from 1m to 3.5m units, mostly Single Family.  Why concentrate on Multi Unit, unless you expect that the Single Family units are still overbuilt, there are not enough qualified buyers to purchase the inventory and that there will not be a reasonable housing recovery for an extended period.

•   A 681k annual rate of new Total Starts is 118k over the estimated amount of “new family creation”.  So, Housing Starts is still adding to excess inventory.

•   Single Family Starts up by 2.3% Year over Year.  That amounts to 15,000 new starts.  Not really that much, so Single Family Housing is still reeling, especially if one considers that 2001 saw 1.6 million units built.

•   The South is leading in Single Family Starts, at 233k for the year.  The West has 91k, and this number has fallen in a range of 75k-93k over the last two years.  The East at 41k, and the Midwest at 71k.  The Northeast and Midwest have similar trends existing as in the West.

•   Why is the South growing much faster than the other parts of the area?  Weather factors that cause replacement of Single Family Units?  Better economy like in Texas?
As you can see, a cursory look like Wesbury does means little.  The devil is in the details, and the details do not suggest much movement in Single Family, which is the most important category.

Other:

The NAR released its “adjustments” to the Sales figures from 2007-2011.  The adjustment was 14.5% downward.  They confirmed that the 2011 stats were inflated by the 14.5% figure, and when looking at 2007-2010, the NAR simply used the same 14.5% amount, instead of calculating actual amounts.  I believe that the number is still significantly overstated, but without independent 3rd party confirmation, it is not possible to know the true facts.
 
FHA Article
The FHA article gives a decent overview of the housing mess FHA is in.  Right now, it is undercapitalized by 2%, per legal requirements.  There have been no notable plans for curing the undercapitalization of FHA.

FHA is doing approximately 40% of all new purchase loans.  People go FHA when they cannot get approved through the GSE’s.  The reason that most go FHA is poor credit, and lack of any real down payment.  2.5% down can get you approved with FHA.

Loans done with a value of 95 – 97.5% go into default at a 16.5% (appx) rate.  Since this is a large portion of the FHA business, expect defaults to continue to rise.

Fannie & Freddie Lawsuit

Don’t expect anything from the lawsuits.  The major players, Johnson and Raines, are nowhere to be seen in the lawsuit.  The suit is simply “window dressing” for an election year, nothing else.

Mandated Foreclosure Review for 2009-2010 loans

The reviews are not going to accomplish anything.  The key element is proving “harm” to the homeowner. 
I have been reviewing large numbers of loans for “harm” over the past few years.  Only in a very few cases can “harm” be proven.  In almost every case, the “harm” did not meet or exceed the “harm” to the lender in missed mortgage payments.  For those seeking foreclosure reviews, they are going to be severely disappointed.
At this time, there is nothing to suggest that an earthshaking change is coming to the Housing Market.  Things appear to be as stagnant as the Western Front in WW1.

Additional

BTW, two weeks ago I had lunch with a person who “owned” several small banks in his lifetime.  He now consults with banks for restructuring and a return to health.  Currently, he is working with 40 banks across the US, and is a paid advisor for the GSE’s on developing the new Underwriting Standards. We are both involved in a large court case in CA, regarding a regional bank.

Lunch was the perfect time to ask him about why the banks were not lending.  Of course, he asked my opinion, and I stated Capital Impairment as a major factor, and then the lack of qualified borrowers.

His response was that the banks that he deals with, and all here would recognize most names, have plenty of capital to lend.  They have been making very reasonable returns on their money, especially since their current cost of funds is no greater than 0.20%, i.e., less than 1%.

The problem as he described it, was that there are few really qualified borrowers in the market.  Either the borrowers do not qualify for a loan, or they are too risky even if they qualify.  The good borrowers are not in the market at this time.

[Crafty_Dog]

As usual Pat a great post; we love having you here.

I now post another missive from Wesbury, not as a counter to what you say, but because I post him here as a rather constant point of reference so that we do not become an echo chamber.

Marc
==============

Existing home sales increased 4.0% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/21/2011
Existing home sales increased 4.0% in November to an annual rate of 4.42 million units, well below the consensus expected pace of 5.05 million units. Existing home sales are up 12.2% versus a year ago.
Sales in November were up in all major regions of the country. All of the increase in overall sales was due to single-family homes; sales of condos/coops were unchanged for the month.
 
The median price of an existing home rose to $164,200 in November (not seasonally adjusted), and is down 3.5% versus a year ago. Average prices are also down 3.5% versus last year.
 
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) fell to 7.0 in November from 7.7 last month.  The decline in the months’ supply was due to both a faster pace of sales and a drop in the inventory of homes for sale.
 
Implications:  The big headline on existing homes is that sales were revised down 14 percent for the past few years because the National Association of Realtors made mistakes that apparently resulted in double counting.  These revisions were well publicized, so it is strange that so many forecasters (but not First Trust) ignored this and continued to predict more than 5 million sales.  So, while sales fell about 12 percent below consensus, the data also show that sales were up 4% in November and 12% from a year ago.  Meanwhile the inventory of homes is down 18% versus last year and at the lowest level since 2005.  This resulted in a 7 months’ supply of unsold homes, the lowest since 2009.  The healing in the housing market is further along than previously thought. The pessimistic narrative you may hear elsewhere about how bad today’s report was and how ugly the revisions were is simply not true.  Reported existing home sales never fell by as much as new home sales or home building the last few years. So, today's revisions fix the problem caused by over counting. In addition, existing home sales only measure a shift in assets from a buyer to a seller.  They do not count as current production and will have no impact on our GDP forecast. As the inventory of existing homes continues to be whittled down, we expect a steady recovery in the housing market.

[Crafty_Dog]

Of course this piece needs to be read with its source of publication, Pravda on the Hudson, in mind.   I remain unchanged in my assignment of blame to the FMs.

That said, I do think he raises an interesting point concerning the FMs concern about losing market share.  IIRC this is correct.  Indeed, IIRC one of the ways in which Baraq's buddy Franklin Raines (coincidentally not in trouble with the current prosecution) got into trouble was for accounting chicanery to accelerate profits so as to increase.  

=============================================

So this is how the Big Lie works.
The New York Times
Joe Nocera

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point.

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie — because, after all, they caused the crisis! Throw in The Wall Street Journal’s editorial page, which, on Wednesday, published one of Wallison’s many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie.

In Wallison’s article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.’s allegations show is that the Big Lie is, well, a lie.

Central to Wallison’s argument is that the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain “affordable housing mandates,” were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those “risky” mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

As Karen Petrou, a well-regarded bank analyst, puts it: “The S.E.C.’s facts paint a picture in which it wasn’t high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.” As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn. They were becoming irrelevant in the most profitable segment of the market — subprime. And that they couldn’t abide.

(The S.E.C., I should note, had its own criticism of my column, saying that I conflated its allegations regarding the lack of disclosure of subprime mortgages, with an entirely different set of charges it has brought regarding disclosure of so-called Alt-A loans. I still maintain that the S.E.C.’s charges are weak, and that the agency brought the case in part for political reasons: how better to curry favor with House Republicans than to go after former Fannie and Freddie executives?)

Three years after the financial crisis, the country would be well served by a real debate about the role of government in housing. Should the government be helping low- and moderate-income Americans own their own homes? If so, is there an acceptable level of risk? If not, how do we recast the American dream?

To have that debate, though, we need a clear understanding of what role the government’s affordable-housing goals did — and did not — play in the crisis. And that is impossible as long as the Big Lie holds sway.

Which, now that I think of it, may be the whole point of the exercise.

[DougMacG]

Your intro Crafty makes more sense than the story.  It is fine and well to go after misdeeds in the packaging of the loans, but it was the product inside the package, not the gift wrapping, that was the root of the problem.  It is quite a bit bone-headed to say that blaming government policies for this debacle is a 'The Big Lie'.  OTOH it means they know their attempt to paint it some other way is failing.

Government policies caused lenders to make loans on criteria other than creditworthiness and likelihood of repayment.  If you find a hundred or a thousand felonies in the securities business packaging these loans, that does not change the underlying fact that this crisis was about lenders making bad loans based on rules/ lack of rules coming down from underwriting - which had become 90% federal.

Go back to the basics, what is a down payment?  It is skin in the game.  Your own skin earned by setting an alarm, going to work, taking all the crap that often entails, having the government chop down what you earned into take home and then refraining from spending it all on everything else you want and need over an extended period of time so that you have 20% down to buy a house you can call your own.  How do you get to 20%? By getting your savings up and by keeping the price down.  The skin of your own in the game and the fact that it forces the price to be both competitive and affordable also creates the cushion to allow for short term value fluctuations without panic before the larger appreciation over time hopefully sets in.

The last time I borrowed against the purchase of a house, it was nominally 5% down, really 10%.  I borrowed 95%, paid a highway robbery firm (AIG?) for PMI for years as insurance and penalty for the 'small' down, I had to bring 10% cash to closing to cover the down and the costs and I had to prove none of that money came from borrowed funds.  I came out okay when it went up 750% over the next 20 years (and then down!), but at the start the borrower is clearly more likely to walk with a smaller down payment combined with a larger debt burden.  The added cost of PMI only make the total cost worse and default more likely.

From 20% down, to creating exceptions to that rule, then we went all the way to people borrowing 125% of the purchase price(?)!  I had originators calling me to clear the judgments that their borrowers still owe on the last place they couldn't afford and roll it all into the new loan they would never pay back, with no down payment and closing costs all rolled in with the other extras and maybe a free trip to boot.  All they had to do was sign, but the lender already knows their signature / their word is no good from their awareness of the judgements of not honoring previous commitments.

What could possibly go wrong?  Everything.  The borrower has no likelihood of payback and the value, price and loan amounts are all pure, inflated fiction.  Add to it that the same thing is happening all over the neighborhood, the city and the nation, all certain to fail.  Not because of packaging, because of bad loans from bad lending practices.

What changed during this time in the underlying math and science of good lending practices?  Nothing.  Then why did lending practices change and make a U-turn?  Government policies.  Government pressure.  Government rules.  Nothing else.

The real followup to this should be to look at all the other policies of government enacted during this time to see what else they f*kced up that will continue to bring down our economy and our republic.

[DougMacG]

(From Canada-US thread)  JDN writes: "I agree, the government has no business being in the business of encouraging home ownership.  Doug, are you therefore saying that the mortgage deduction (government intervention) should be immediately repealed?"

You don't have to guess my view (or put words in my mouth).  I have a long record here and will be happy to post again.

The point over there was that banking regulators have no business being in the business of promoting larger home ownership borrowing at the expense of creditworthiness, regardless of anyone's view on home interest deductions.  If we want a home ownership preference, it should done in plain sight - with spending or by continuing the existing deduction.  That system has worked pretty well so it isn't one of the first thousand things I would change if suddenly my view mattered.

I don't like any deductions other than those that help calculate income accurately.  The rest is social engineering.  That said, home ownership is our best social engineering project.  I would eliminate that only after eliminating every other wasted deduction and wasted spending program, when we are down to a small constitutional federal government with a low single digit tax rate - which means closer to never than immediate.

I supported the Perry plan as the closest serious political proposal to taxing all income the same no matter who earns it or how.  He lowers the rate to 20% (instead of the then more popular 9% proposal) but keeps a personal deduction until you are above poverty level and keeps the mortgage and charitable deductions.

When I buy property, I require of myself that all purchases would have to make sense even if there was no tax deduction and no appreciation - or don't buy.  I will not rely on a break from the government or an uncertain future value for a major investment to make sense.  Not true for others.  In the housing thread, Pat P. made clear that housing would go from crisis to collapse if we eliminate that deduction now.  That would not solve any current problem.  In housing people make long term decisions while government can change the rules on a whim.  That is why proposals like Gingrich and Perry's maintain the taxpayers choice of using the old system.
------

What we call 'encouraging home ownership' really should be called encouraging home 'borrowing'.  I have no idea what a zero equity "purchase" lent at a variable rate to people ready to walk at the first sign of trouble has to do with owning a home or bringing stability to a neighborhood.  

[JDN]

I'm sorry Doug, I did not check your opinion on eliminating the mortgage deduction.  I meant no disrespect.

Your quote, well put I thought was, "If the regulation is to “encourage home ownership”, that is government intervention in the market and, as we see from the economic chaos that has ensued from such policies it is NOT fine."  I also agree with your thought, "What we call 'encouraging home ownership' really should be called encouraging home 'borrowing'.  I have no idea what a zero equity "purchase" lent at a variable rate to people ready to walk at the first sign of trouble has to do with owning a home or bringing stability to a neighborhood."

I was merely pointing out that offering a deduction for personal home interest is "encouraging home ownership"; it is just another form of government intervention.  Yet many of my Republican friends seem to like (since most of them own homes) that kind of government intervention.  Convenient.  Personally, I think the mortgage interest deduction should be eliminated; why should the government be involved in personal home ownership?  Nearly all personal interest in general is non deductible; yet home ownership interest is exempt.  Odd.  Also, a personal residence is exempt from capital gains taxes if held for a few years, that seems like another form of "encouraging home ownership".  Again, I think the government should not intervene in home ownership by offering special deals.  Home owners seem to have their cake and eat it too.

Somehow Canada, England and most industrialized nations do not offer a personal residence mortgage deduction.  Yet, overall their real estate has done fine - it seems to have little long term impact. 

As a side note, concerning your property business, I think like in Canada (where this thread was started by you) the interest should be deductible, but then any profits are taxable.  Like any business, that seems fair.

[DougMacG]

JDN, no problem.  Just to clarify, my opinion would be different if we were designing a tax system from scratch instead of discussing what changes we can make immediately to a deduction perhaps a hundred million people count on if you include the dependents in the home. 

Crafty posted a story a short while back about high tax rates and everything people did to not pay them.  Home mortgage interest is probably first on that list.  If you are higher income and in a higher tax bracket, you can't afford to not be all consumed in home debt or you will killed with an income tax bill.  That is an upside down incentive.  What brings more financial security than the day you pay off your mortgage, instead we punish you.  People would not have supported 70% or 90% tax rates back then if people really had to pay them.  Today they wouldn't support 39.6% federal and a roughly 50% combined rate in states like yours or mine if they really had to pay all that.  Cut spending first and then cut tax rates dramatically and maybe then people will accept and survive losing their favorite loophole.


Your first quote in the 2nd paragraph is Crafty's, not mine. I also found it very well put and agree  wholeheartedly.

I did post the original piece on Canada; I like looking across the world and back through history for economic lessons.  That doesn't mean I wish to emulate them, just learn all that we can.

[DougMacG]

I'll try to be calm with my comment but I am thinking that after a fair trial I would hang these people for treason.

http://www.reuters.com/article/2012/01/05/us-usa-fed-housing-idUSTRE8031SE20120105

(Reuters) - The U.S. government-run mortgage finance firms Fannie Mae and Freddie Mac could play a bigger role in turning around the battered U.S. housing market, the Federal Reserve told Congress, a call that looks set to run into stiff political opposition.

The Fed, in a paper sent to lawmakers on Wednesday, outlined an array of steps that could be taken to help the housing sector, including allowing Fannie and Freddie to provide cheaper mortgages to a broader pool of homeowners.

[G M]

I'll try to be calm with my comment but I am thinking that after a fair trial I would hang these people for treason.

http://www.reuters.com/article/2012/01/05/us-usa-fed-housing-idUSTRE8031SE20120105

(Reuters) - The U.S. government-run mortgage finance firms Fannie Mae and Freddie Mac could play a bigger role in turning around the battered U.S. housing market, the Federal Reserve told Congress, a call that looks set to run into stiff political opposition.

The Fed, in a paper sent to lawmakers on Wednesday, outlined an array of steps that could be taken to help the housing sector, including allowing Fannie and Freddie to provide cheaper mortgages to a broader pool of homeowners.

This is why I'm going long on ammo and freeze dried food.

[Crafty_Dog]

Presidents can replace the chiefs of regulatory agencies for all sorts of reasons, from poor performance to misconduct. But Democratic braying for the head of Edward DeMarco marks the first time we can recall that politicians are demanding that someone be fired for the high crime of protecting American taxpayers.

Mr. DeMarco is acting head of the Federal Housing Finance Agency (FHFA), a regulatory agency created in 2008 that oversees the taxpayer-backed mortgage giants Fannie Mae and Freddie Mac that are now in conservatorship. In a letter to President Obama Tuesday, 28 House Democrats claimed Mr. DeMarco interprets FHFA's mandate "far too narrowly" and "failed to take adequate action to help homeowners."

They want Mr. Obama to install a new director over Mr. DeMarco using the recess-appointment powers that the President has suddenly discovered in the Constitution even when Congress is in session. (See above.) "We appreciate your recent appointment of Richard Cordray as the Director of the United States Consumer Financial Protection Bureau" over GOP opposition, they write, "and we urge that you take the same action to put in place a permanent Director to the FHFA."

This is a radical suggestion, so it's worth examining what the FHFA mandate is. According to the law, the agency is supposed to "preserve and conserve" Fan and Fred's assets for its current owners—taxpayers—and place them in a "sound and solvent condition" while Washington figures out what to do with them next. As Mr. DeMarco told the Senate in November, FHFA isn't authorized to use the public's money for "general support and uplift of the housing market."

Thus Mr. DeMarco has resisted calls for principal reduction programs, massive refinancings and other politically motivated brainstorms that would reduce the value of Fan and Fred's assets and add to the already $142 billion in losses the toxic twins have racked up. Instead, FHFA has strengthened underwriting standards, raised fees the companies charge to guarantee mortgages, investigated new ways to sell FHFA's foreclosed-home inventory, implemented better and more uniform disclosure, and more.

You'd think Congress would cheer these efforts, given the contributions that Fannie and Freddie made to the housing bubble and bust. But it's an election year, housing prices are flat or still falling in much of the country, White House initiatives to slow the pace of foreclosures have compounded the pain, and House Republicans won't spend more on "stimulus." Democrats therefore want to turn Fan and Fred into political piggybanks to buy support from homeowners who borrowed more than they could afford.

Sad to say, the ostensibly independent Federal Reserve is providing intellectual cover for this raid. Fed Chairman Ben Bernanke sent a white paper to Congress last week advocating actions "that might promote a faster recovery in the housing market." And Fed Governor Elizabeth Duke took a barely concealed shot at Mr. DeMarco by telling policy makers they shouldn't focus "entirely on minimizing losses" to Fan and Fred.

In contrast, Republican Senator Orrin Hatch of Utah did a public service this week by warning Mr. Bernanke in a letter that such lobbying "intrudes too far into fiscal policy advice and advocacy." The entire Senate GOP conference ought to deliver a similar brushback to the Fed's blatant election-year politicking.

The political clamor to replace Mr. DeMarco isn't about saving housing markets. It's about saving Democrats from having to explain why their housing policies have failed.

[G M]

http://www.theatlantic.com/business/archive/2012/01/when-will-housing-hit-bottom/252157/

When Will Housing Hit Bottom?
By Megan McArdle





Jan 27 2012, 3:54 PM ET123

 The National Association of Realtors is (quelle surprise!) quite bullish on the future of the housing market.  Not so fast, says Lance Roberts of StreetTalk Advisors:



He sees 2012 as another year of lagging sales, considering the average household debt for Americans over the age of 16 comes to $96,229 per person. In addition, the average income before taxes is roughly $54,110 and many Americans have a debt-to-income ratio of 177.8%, making it difficult for them to qualify for a home loan.

 Roberts says the average median income for a family is $55,000, and the average median home sales price is $214,000. To afford such a home, the average American would have to put down 20%, or roughly $42,800. But, Roberts says that amount is nearly impossible to save, given the state of the economy and consumer debt levels.

 "In today's credit constrained environment due to the financial crisis which has left the major banks saddled with millions of homes that are delinquent or in foreclosure -- there is little reason to lend money to borrowers who can't meet very stringent qualification requirements," Roberts wrote in a recent blog posting.

 Still, his contrarian report arrives at a time when analysts are placing confidence in lower prices to spark a housing turnaround.
Even here in DC, which has been basically the only market to defy recent trends, housing prices stalled in the fourth quarter. And while housing starts had been finally recovering, new home sales fell in December, weakening what had started out as a strong quarter. Owner occupied sales rose, but all that does is eat up a wee bit of the outstanding inventory; it doesn't mean a return to growth. 2011 now stands as the weakest year for new home sales on record. And that's in a record low interest rate environment.



Of course, the general rule of recoveries is that things look really bleak until they don't.  But still, let's ask the question: what if housing doesn't recover?  Can the economy recover without it?




There are a lot of reasons to think that it can't. Underwater houses constrain consumer spending; they make people feel poorer; they depress labor mobility, because people who can't sell can't move elsewhere to look for a job.  Since new businesses are often funded with personal credit--or even loans against the house--it probably depresses firm formation, and the resulting innovation.  And of course, construction is normally a substantial component of GDP.




On the other hand, there's no iron law that says that we can't have a strong economy with a weak housing sector.  We just never have had, before.

[DougMacG]

"there's no iron law that says that we can't have a strong economy with a weak housing sector.  We just never have had, before."

I believe that 99 weeks of unemployment slowed the jump of housing construction workers into other professions.  The car doesn't run full speed with major engine parts removed from the vehicle.

[G M]

What other professions would those be? There is a serious lack of jobs out there.

[DougMacG]

"What other professions would those be? There is a serious lack of jobs out there."

Keystone pipeline.  Fracking.  Rare earth mineral mining.  Deep sea drilling.  http://www.nytimes.com/2010/04/21/us/21ndakota.html  http://www.denverpost.com/business/ci_18160248  More secretaries for Buffet? Here's an idea, repeal unnecessary and unhelpful regulations, make energy prices and property taxes globally competitive and then...build stuff here.

Who knew that killing off all job creating investment would affect jobs?

When we get the policies right, jobs will return and so will housing. 

[Crafty_Dog]

I will ask our Pat to comment:
=======================

Treasury Investigates Freddie Mac Investment
By SHAILA DEWAN
Published: January 30, 2012

The Treasury Department is investigating a report that Freddie Mac, the mortgage giant, bet against homeowners’ ability to refinance their loans even as it was making it more difficult for them to do so, Jay Carney, a White House spokesman, said on Monday.

The report came just as the Obama administration had been escalating its efforts to push Fannie Mae and Freddie Mac to ease conditions for homeowners, including those who owe more on their mortgages than their homes are worth.

Last Friday, the Treasury announced that it would offer increased incentives to lenders to forgive portions of homeowner debt, saying pointedly that for the first time the incentives would be offered on loans held by Fannie and Freddie.

But Fannie and Freddie, which said they would review the increased incentives, have long declined to allow debt reduction on the loans it holds or guarantees, saying that it would create unnecessary losses for taxpayers. The companies, which are financed by taxpayers, have also maintained barriers to refinancing, like risk-based fees for homeowners, even as mortgage interest rates have dropped below 4 percent.

In his State of the Union address last week, President Obama said a new refinancing program would cut through government red tape. He has yet to provide details of the program.

The Obama administration has tried, with scant results, to persuade Fannie and Freddie to ease refinancing restrictions and participate in debt forgiveness programs.

The Federal Reserve, which has made low interest rates a crucial part of its response to the financial crisis, has also objected to some of the barriers to refinancing, including fees it has said are unjustified.

On Monday, ProPublica and National Public Radio reported that Freddie Mac, which maintained slightly tighter restrictions than Fannie on homeowners’ eligibility to refinance, had a multibillion-dollar investment whose value hinged on borrowers continuing to pay higher interest rates.

Beginning in 2010, Freddie bought several billion dollars’ worth of “inverse floater” securities — essentially the interest-paying portion of a bundle of mortgages — for its investment portfolio while selling the far less risky principal portion. Fannie and Freddie are supposed to be decreasing the size of their investment portfolios.

There is no evidence that Freddie tailored its refinancing standards to its investing strategy, but “inverse floaters” make less money if the loans they cover refinance to a lower interest rate.

Freddie issued a statement on Monday defending its commitment to helping homeowners. “Freddie Mac is actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates,” it said. The company said refinancing accounted for 78 percent of its loan purchases in 2011.   

Christopher J. Mayer, a real estate professor at Columbia Business School who has been a proponent of mass refinancing, said he could see little reason for Freddie to use such a complex investment scheme. “Why are we three years into the crisis and some of the same kinds of complicated derivatives deals that brought down some of our biggest financial institutions are being done by Freddie Mac?” he said.

The Federal Housing Finance Agency, Freddie Mac’s regulator, also had problems with the deals. Late Monday, the agency said it had reviewed the inverse floaters last year and had identified “concerns regarding the controls, including risk management.”

Freddie Mac had already stopped conducting the transactions, and only $5 billion of its $650 billion portfolio was held in inverse floaters, the statement said. It said that the investments had no bearing on recent changes, announced last fall, to the Home Affordable Refinance Program, in which Freddie maintained stricter controls than Fannie on homeowners who owed less than 80 percent of their homes’ value.

Some have advocated principal reduction as a better way to restore equity to homeowners, though it is more expensive. The Treasury’s offer on Friday would triple the incentives paid to lenders that reduce principal, to 18 to 63 cents on the dollar from 6 to 21 cents on the dollar.

Proponents say that reducing principal is the most effective type of loan modification and that it would help the housing market and the broader economy by reducing the $700 billion in negative equity that is weighing down growth.

But Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, has remained unconvinced that principal reduction is consistent with the goal of saving taxpayer money that was used to bail out Fannie and Freddie. Two weeks ago, he wrote in a letter to Congress that principal reduction would cost $100 billion if every single underwater government-backed mortgage were adjusted.

Mr. DeMarco noted that reducing principal could reduce losses not for taxpayers but for third parties, like the holders of secondary loans or providers of mortgage insurance. “F.H.F.A. would reconsider its conclusions if other funds become available,” he wrote.

[ppulatie]

I have been buried in "trial prep" for the last month.  I will try and post some things next week.  (Trial starts then, with Pre-trial motions and Jury Selection, so the attorneys will not need me day and night.)

[Crafty_Dog]

Thank you Pat, we look forward to it.  

===================
As predicted by Pat:

By MIA LAMAR
U.S. home prices fell again in November, according to the Standard & Poor's Case-Shiller indexes, which reported Tuesday that the majority of metropolitan markets posted declines.

More
A Look at Case-Shiller by Metro Area
Sortable Chart: Home prices, by city
.The U.S. housing market has remained sluggish despite lower prices and interest rates due to a slowly improving economy, an abundance of foreclosures and tighter mortgage requirements.

For November, the Case-Shiller index of 10 major metropolitan areas and the 20-city index both fell 1.3% from the previous month. David M. Blitzer, chairman of the index committee at S&P Indices, also noted that 19 of the 20 major U.S. metropolitan markets covered by the indices in November saw prices decline from October.

"The only positive for the month was Phoenix, one of the hardest hit in recent years," Mr. Blitzer said. "Annual rates were little better as 18 cities and both composites were negative."

The 10-city and 20-city composites posted annual returns of negative 3.6% and negative 3.7%, respectively, versus November 2010. At negative 11.8%, hard-hit Atlanta continued to post the lowest annual return.

[G M]

http://www.washingtonpost.com/business/economy/house-prices-hit-post-bubble-low/2012/01/31/gIQAYBTEgQ_story.html

House prices hit post-bubble low


.

When it comes to the value of what many Americans consider their biggest financial asset, no such return appears in sight.

Data released Tuesday showed that seasonally adjusted housing prices have reached a post-bubble low, as the minor surge that began in 2009 fizzled, to be followed by the almost continuous slide of the past 18 months.

The housing bust, in other words, appears to be even worse than it was at the nadir of the recession.

For millions of homeowners, that’s an unsettling reality, and potentially an issue in the presidential campaign. But the damage may be far more widespread.

By making people feel less wealthy, according to economists, the decline in home values inhibits consumer spending and hampers the nation’s stop-and-start economic recovery.

“The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand,” said David M. Blitzer of S&P Indices. “I spent the weekend scratching my head and saying, ‘Isn’t there some good number in here?’ ”

The Standard & Poor’s Case-Shiller seasonally adjusted housing index for 20 cities dropped again in ­November, the last month for which data were available, falling to a level not seen since 2003.

In the Washington region, seasonally adjusted prices have been relatively flat since April 2010, according to the index, but they remain about 27 percent below their peak.

Of the 20 cities in the index, only three — Denver, Minneapolis and Phoenix — showed improvement from the month before.

“Looking forward, continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery,” according to a Federal Reserve white paper issued in January.

The dip in home prices stems from an excess of supply, which has been made worse by foreclosures and tighter mortgage-lending standards, according to analysts at the Fed and elsewhere.

The depth and extended duration of the housing slide — it has been six years since national housing prices peaked — are astounding, even to many economists who have watched it closely.

“Housing starts have been at 60-year lows for 38 months — it’s incredible,” said Karl E. Case, emeritus professor of economics at Wellesley College and co-founder of the housing price index. “It’s a complete depression.”

Case noted, for example, the slump’s profound effect on the residential construction industry: Annual housing starts in the United States peaked at 2.37 million and have fallen to fewer than 700,000.

“Eighty percent of a major industry in the United States just disappeared,” he said.

More generally, economists differ on exactly how much the fall in housing prices has retarded the U.S. economy.

But in a paper last year, Case and colleagues John M. Quigley and Robert J. Shiller found that housing wealth has a “rather large effect” on how much households consume.

It is this lack of demand in the economy that has been one of the persistent problems in the U.S. recovery, according to economists. Consumer spending accounts for more than two-thirds of the U.S. economy.

The recent white paper from the Fed noted, for example, that housing prices have fallen an average of about 33 percent from their peak, erasing $7 trillion in household wealth. With that, according to the paper, comes a “ratcheting down” of what people buy.