California Foreclosures > National New Home Sales

The Big Picture's quote of the day:

“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”

-Mark M Hanson

Let's go to the chart...

http://1.bp.blogspot.com/_8rpY5fQK-UQ/SnED-GANpCI/AAAAAAAAHfs/ybwzv1tHFwE/s400/newfore.png

While the Census reported new home sales came at 36,000 for the month on an unadjusted basis, Foreclosure Radar reported:

Notices of Default, the initial step in the foreclosure process, rose by 11.8 percent to the second highest level on record at 45,691 filings. Year-overyear filings increased by 10.0 percent from June of 2008.

Mark is close (and things are horrendous), but they aren't quite that bad. So, please use the following quote going forward:

“National New Home Sales, on a monthly basis, don’t even add up to 80% of the total foreclosure activity in California alone in a single month.”

-Jake (EconomPic Data)

http://econompicdata.blogspot.com/2009/07/california-foreclosures-national-new.html

Why would one buy a new home when a "used" home that's been foreclosed on is cheaper, and often times better(at least according to my values)?

this is a time to save up gold coin, even if just a few, and in a few years you'll be able to buy a farm or a multi-family for it.

If there is little or no available credit, the price of housing will have to come way way way way down, down so low so people can buy it with cash. I'm talking in the 5,000 to 10,000 range.

Ideally, get a multi-family on multiple acres, so you can use your tenants as share-croppers.

Anonymous said...
Don't forget that some notices of trustee sales are a bluff. I'd want to know which sales were actually consummated.

About a year ago, I did go to one of those auctions by a huge outfit that advertises on TV and the staff wears black tie formal. It wasn't the bloodbath I'd expected, as everyone had done their homework and bids were much higher than I'd expected.

My sense is that prices have a long, long way to fall yet and those buying presently are much more optimistic than I am.

August 8, 2009 9:50 AM (http://econompicdata.blogspot.com/2009/07/california-foreclosures-national-new.html?showComment=1249750218177#c3281989886607543912)

I owned it on 5 1/4" floppies, so you know it was some time ago. You plugged-in current rents, home prices, interest terms, etc., and you got their answer that, of course, didn't include a lot of things that we might consider. But it was/is useful.

Someone with more time might contact them and see if it is available anymore.

Real Estate Center
2115 TAMU
College Station, TX
77843-2115

Phone: 979-845-2031
Fax: 979-845-0460

<li class="g">Real Estate Center Data (http://recenter.tamu.edu/Data/)

Homes sales and rural land data for Texas metropolitan areas. ... 2009. Real Estate Center at Texas A&M University. All rights reserved.
recenter.tamu.edu/Data/ - Cached (http://74.125.155.132/search?q=cache:CdFM8fGKK-YJ:recenter.tamu.edu/Data/+texas+a%26m+university+real+estate+center&cd=2&hl=en&ct=clnk&gl=us) - Similar (http://www.google.com/search?hl=en&q=related:recenter.tamu.edu/Data/)
<li class="g">Master of Real Estate Program | Mays Business School | Texas A&M ... (http://mays.tamu.edu/mre/)

Mays Business School at Texas A&M University. ... Our program integrates the studies of real estate and business through a broad curriculum, ...
mays.tamu.edu/mre/ - Cached (http://74.125.155.132/search?q=cache:IqHUn6K-KKYJ:mays.tamu.edu/mre/+texas+a%26m+university+real+estate+center&cd=3&hl=en&ct=clnk&gl=us) - Similar (http://www.google.com/search?hl=en&q=related:mays.tamu.edu/mre/)
<li class="g">[PDF] A Homeowner's Rights Under Foreclosure (http://www.sml.state.tx.us/ConsumerInformation/helpful_links_for_consumers/tdsml_homeowners_rights_foreclosure.pdf)

File Format: PDF/Adobe Acrobat
Texas A&M University. Revised September 2008. © 2008, Real Estate Center. ..... Texas real estate market into the 1990s. Even though the ...
www.sml.state.tx.us/.../tdsml_homeowners_rights_foreclosure.pdf - Similar (http://www.google.com/search?hl=en&q=related:www.sml.state.tx.us/ConsumerInformation/helpful_links_for_consumers/tdsml_homeowners_rights_foreclosure.pdf)
<li class="g">The Gals Blog : Texas A&M Real Estate Center reports on Existing ... (http://www.austinrealestategals.com/blogs/gals_blog/archive/2008/5/31/texas-a-m-real-estate-center-reports-on-existing-home-sales-in-texas.aspx)

May 31, 2008 ... EXISTING HOME SALES DOWN IN TEXAS TEXAS (Real Estate Center, ... to MLS data compiled by the Real Estate Center at Texas A&M University. ...
www.austinrealestategals.com/.../texas-a-m-real-estate-center-reports-on-existing-home-sales-in-texas.aspx - Cached (http://74.125.155.132/search?q=cache:QZStRnEhPUkJ:www.austinrealestategals.com/blogs/gals_blog/archive/2008/5/31/texas-a-m-real-estate-center-reports-on-existing-home-sales-in-texas.aspx+texas+a%26m+university+real+estate+center&cd=5&hl=en&ct=clnk&gl=us) - Similar (http://www.google.com/search?hl=en&q=related:www.austinrealestategals.com/blogs/gals_blog/archive/2008/5/31/texas-a-m-real-estate-center-reports-on-existing-home-sales-in-texas.aspx)

Why would one buy a new home when a "used" home that's been foreclosed on is cheaper, and often times better(at least according to my values)?

I assume that many of these homes that have been foreclosed have been resold to someone else. The media doesn't report that side of the ledger. They keep screaming about the number of homes under foreclosure but don't mention how many have been either re-financed or sold to someone else.

Same with jobs. The media reports and emphasizes the number of jobs lost but don't report the number of new ones. Also, our economy normally turns over a large number of jobs every year anyway, so its only the increase in turnover that is significant.

I still don't think we are really in a recession. I think we are suffering from over-production due to federal programs to "help the poor" and "to help minorities achieve the American dream". The government artificially stimulates production through deficit spending, but the deficit spending devalues the dollar so the people cannot consume the increased production. Thus, the federal government is the cause of the problem, and more of it is not the solution.

Commercial Real Estate Faces More Trouble Ahead: LeFrak

Published: Friday, 14 Aug 2009
By: JeeYeon Park

There are new signs of trouble in the capital markets, which will ultimately affect the commercial real estate sector, said Richard LeFrak, president of The LeFrak Organization.

Watch the Full Interview

“The shadow banks have evaporated,” LeFrak told CNBC. “They were supplying 35 percent of the capital in the industry and they just disappeared.”

Other than paper backed by Fannie Mae [FNM 1.03 -0.03 (-2.83%) ] and Freddie Mac [FRE 1.41 -0.04 (-2.76%) ], LeFrak said mortgage funds have "disappeared," including portfolio lenders who are reducing their holdings in hopes of reducing their exposure to the real estate space.

Commercial real estate has been targeted as the next economic shoe to drop, with offices downsizing due to rising unemployment and rent reduction for retailers and hotels. As a result, banks and lenders have been cautious to provide loans to real estate buyers.

“So other than for their very best customers, [banks] are out of the market and there’s a huge gap today in terms of what’s going to be needed,” LeFrak said.

“There’s $800 billion of refinancing that has to be accomplished in 2010-2011.”

The Federal Reserve’s Term Asset-Backed Securities Loan Facility program (TALF), launched in March, was supposed to be a mechanism by which securitization would restart. But the there is not enough money available in the TALF, said LeFrak.

“It’s a very conservative program in terms of the amount of proceeds and there’s a huge gap between what the TALF will do and what the industry needs,” he said.

http://www.cnbc.com/id/32416800

Same with jobs. The media reports and emphasizes the number of jobs lost but don't report the number of new ones. Also, our economy normally turns over a large number of jobs every year anyway, so its only the increase in turnover that is significant.

The jobs keep disappearing because our businesses out-source thousands of jobs each year. Those jobs are not coming back. What do you think happened to the industrial sector of our economy? These int'l capitalist jerks have bled this country dry and no, it ain't getting better unless we fix it because those assholes don't give a shit about us.

I still don't think we are really in a recession. I think we are suffering from over-production due to federal programs to "help the poor" and "to help minorities achieve the American dream". The government artificially stimulates production through deficit spending, but the deficit spending devalues the dollar so the people cannot consume the increased production. Thus, the federal government is the cause of the problem, and more of it is not the solution.

What you still don't see is that this country used to have an actual productive base, i.e., manufacture. It doesn't anymore except for industrial farming and perhaps car-making. This sector of the economy used to employ most working-age men and they could support families working a single manufacturing job. Compared to the old days, the modern American worker is poor and that is no accident.

This has changed because the Jewish "free trade/free market" creeps who owned the means of production realized that by selling their workers down the river they could pocket vast sums of money. That's what they really mean when they say "gains from trade." It's good to be at the top of the Ponzi - otherwise you're fucked.

Modern capitalism is thoroughly Jewish and it must be gotten rid of like the cancerous parasite it is.

But they (banks & gov.) still give out housing loans to niggers
and they will never pay one cent back........
Just have to love this country......yea right.

Commercial Real Estate Lurks as Next Potential Mortgage Crisis

by Lingling Wei and Peter Grant
Monday, August 31, 2009

Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat.

Their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds. Similar mortgage-backed securities created out of home loans played a big role in undoing that sector and triggering the global economic recession. Now the $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.

The CMBS sector is suffering two kinds of pain, which, according to credit rater Realpoint LLC, sent its delinquency rate to 3.14% in July, more than six times the level a year earlier. One is simply the result of bad underwriting. In the era of looser credit, Wall Street's CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren't generating enough cash to make principal and interest payments.

The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won't be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS — including hedge funds, pension funds, mutual funds and other financial institutions — thus exacerbating the economic downturn.

A typical CMBS is stuffed with mortgages on a diverse group of properties, often fewer than 100, with loans ranging from a couple of million dollars to more than $100 million. A CMBS servicer, usually a big financial institution like Wachovia and Wells Fargo, collects monthly payments from the borrowers and passes the money on to the institutional investors that buy the securities.

CMBS, of course, aren't the only kind of commercial-real-estate debt suffering higher defaults. Banks hold $1.7 trillion of commercial mortgages and construction loans, and delinquencies on this debt already have played a role in the increase in bank failures this year.

But banks' losses from commercial mortgages have the potential to mount sharply, and the high foreclosure rate in the CMBS market could play a role in this. Until now, banks have been able to keep a lid on commercial-real-estate losses by extending debt when it has matured as long as the underlying properties are generating enough cash to pay debt service. Banks have had a strong incentive to refinance because relaxed accounting standards have enabled them to avoid marking the value of the loans down.

"There is no incentive for banks to realize losses" on their commercial-real-estate loans, says Jack Foster, head of real estate at Franklin Templeton Real Estate Advisors.

CMBS are held by scores of investors, and the servicers of CMBS loans have limited flexibility to extend or restructure troubled loans like banks do. Earlier this month, it was no coincidence that CMBS mortgages accounted for the debt on six of the seven Southern California office buildings that Maguire Properties Inc. said it was giving up. "During most of the evolution [of CMBS] no one ever thought all these loans would go into default," says Nelson Rising, Maguire's chief executive.

Indeed, many property developers and investors complain there is no way to identify the investors that hold their debt and that it is difficult to negotiate with CMBS servicers. In light of the complaints, the Treasury is considering guidance that would allow servicers to start talking about ways to avoid defaults and foreclosures sooner, according to people familiar with the matter. But investors in CMBS bonds argue that the servicers are ultimately bound contractually to the bondholders.

So Maguire will soon have a lot of company. In a study for The Wall Street Journal, Realpoint found that 281 CMBS loans valued at $6.3 billion weren't able to refinance when they matured in the past three month, even though 173 such loans worth $5.1 billion were throwing off more than enough cash to service their debt.

Mounting foreclosures in the CMBS sector would likely depress values even further as property is dumped on the market. And this would put pressure on banks to write down loans. "What's going on in the CMBS world is a precursor for what might be seen in banks' books," predicts Frank Innaurato, managing director at Realpoint.

The commercial-real-estate market could yet be salvaged by an improving economy and bailout programs coming out of Washington. In addition, capital markets are starting to ease for publicly traded real-estate investment trusts. Since March, more than two dozen REITs have managed to raise more than $13 billion by selling shares.

Still, most of the $6.7 trillion in commercial real estate is privately owned. Also, it is unlikely commercial real estate will benefit much from an early stage of an economic recovery. What landlords need is occupancy and rents to rise, and that means employers have to start hiring and consumers need to shop more. So far, there are few signs this is happening.

Write to Lingling Wei at lingling.wei@dowjones.com and Peter Grant at peter.grant@wsj.com

http://finance.yahoo.com/real-estate/article/107635/commercial-real-estate-lurks-as-next-potential-mortgage-crisis.html

Have we learned anything?

In The Big Picture, The Great Financial Meltdown Of 2008 Can Be Blamed On The Collapse Of A Series Of Bubbles -- Bubbles In Credit, In Housing, In Asset-Backed Securities. In The Aftermath, We Face A New Threat -- A Knee-Jerk Bubble In Regulation And Government Intervention In Financial Markets. You've Been Warned.

Johan Norberg, National Post

Low interest rates were a key factor in laying the groundwork for the crash of 2008. Now governments are fighting recession -- with more low interests rates. Photography By Spencer Platt, Getty Images

WHAT EXACTLY HAPPENED? How could overly enthusiastic homebuyers in the United States sink the global economy? When the global financial crisis took root last year, many politicians across the world quickly determined that it must have come from inside the financial system, that the reason must have been that market players had been given too free a rein and made too many big mistakes. "Laissez-faire is finished," President Nicolas Sarkozy of France exclaimed in September 2008. "The idea of the all-powerful market, which wasn't to be impeded by any rules or political intervention, was a mad one." At the same time, German finance minister Peer Steinbruck claimed that the crisis revealed that the argument put forth by laissez-faire "was as simple as it was dangerous." German chancellor Angela Merkel drew the conclusion that more financial-market regulation was necessary.

The problem, however, was not that we had too few regulations; on the contrary, we had too many, and above all, faulty ones. Some readers may object that I am mainly quibbling about the meaning of words and fighting an ideological battle. You may have a point. Please feel free to call the problem whatever you like -- just so long as you are aware of what it consists of. Because what would be fatal would be for slogans about "insufficient regulation" to give rise to the idea that the crisis happened because the government was absent, and that the government must therefore intervene and regulate more to avoid a repeat.

Let's look again at the historical background of the crisis. The U.S. housing bubble was pumped up, along with the hunt for even greater risk, when the U.S. Federal Reserve Bank, not wanting the market to set exchange rates, cut interest rates to record-low levels. U.S. politicians pumped up risk-taking and housing prices further through deductions, tax benefits for home savings accounts and restrictions on new construction. By means of legislation, subsidies and government-sponsored enterprises, they managed to generate mortgages even for people that the market deemed uncreditworthy.

The quasi-governmental institutions Fannie Mae and Freddie Mac developed the securitization of mortgages (allowing lenders to package and sell mortgage debt, thus replenishing their capital to make further loans). Wall Street fell madly in love with these mortgage-backed securities once the credit-rating agencies -- which had been given a legally protected oligopoly by the government -- declared them to be safe investments. The central position of Fannie Mae and Freddie Mac reinforced confidence that the government would intervene if the housing market ran into trouble. The Fed's safety net and the federal government's deposit insurance made banks dare to take big risks because they could privatize any gains and socialize any losses.

When home prices began to fall and the market no longer wanted mortgage-backed securities, the financial authorities stepped in and decreed that banks had to write down the value of such securities radically, giving rise to waves of panic selling. This, along with other factors, put such a burden on bank balance sheets that regulations forced them to pile up capital rather than make loans. President Bush and other leading policymakers whipped up a panic to push through laws they wanted. And just as the markets were worried more than ever because they did not know where the big risks were, U.S. authorities banned shorting, thus depriving the markets of liquidity and information when they needed it most.

If this is laissez-faire, then I would like to know what government intervention looks like. If the politicians, central bankers and bureaucrats had intentionally tried to create a crisis, they would have been hard put to find more effective actions.

IT IS A FUNDAMENTAL misunderstanding that the market is rational and at some sort of equilibrium, where all information and wisdom are incorporated in decisions. Neoclassical economic models filled with unrealistic assumptions about humans and the economy should always have warning stickers attached to them. The market is nothing other than all the millions of decisions that we all take as we produce, act and invest -- and the tiniest bit of introspection is enough to realize that we do not behave like the textbook models. Since finding lots of information before acting takes time and costs money, we often go with our gut, following rules of thumb and copying what others have already done. That is why the market has a herd instinct. When others seem to be successful at something and get rich on it, you follow suit. After a while, the hollowness of the enthusiasm becomes apparent, and then it often changes into overblown fear that soon ushers in recession.

A key lesson to be drawn from such events, however, is that borrowers, lenders, bankers and brokers are not the only ones to be affected. Politicians, bureaucrats and central bankers are at least as likely to succumb to the herd instinct -- and they have special power. If you act in a different way from what they have approved, they may take your money or even send you off to jail. This gives them the ability to head the march of the lemmings and set its pace.

Today, the herd is saying that we need strict regulation to ensure that the kind of financial crisis we've endured over the past year will not happen again. Words are cheap. But if it is so easy to avoid crises, why didn't the thousands of new pages of regulation written after earlier crises steer us clear of this one? In fact, the story of this storm in the global markets is the story of how government intervention to solve previous crises laid the foundation for the new one. The Fed started making money cheap in 2001 to avoid deflation and a depression. The credibility of credit ratings became exaggerated because financial authorities believed that government-sanctioned ratings would lead to more stable levels of risk. The capital requirements agreed to under these international banking standards gave rise to increasingly exotic financial instruments and pushed assets off banks' balance sheets. New requirements to mark assets to market were intended to prevent cheating, but in reality they served to amplify the downturn and knock out the investment banks. And so forth.

Nothing looks easier than retrospective regulation to ensure that we do not repeat the particular mistakes that messed things up in the past. But like generals, bureaucrats always fight the last war.

The best outcome to be hoped for is that they will prevent market players from making exactly the same mistake they made last time -- that is, the mistake everybody is focusing on avoiding anyway. On top of that, you also get a whole new battery of regulations that may well make the next crisis considerably worse.

Since no one knows where the next crisis will come from, companies and investors hardly need more bureaucrats looking over their shoulders, trying to guess what they are doing right or wrong. They need room to manoeuvre so that they can adjust or change their strategies as quickly as possible whenever there is new information about what is happening to demand, competition and credit. Nothing is more dangerous than going too far in the search for safety, because that may lead to regulations that block the best paths of action in a crisis.

There is already a dangerous homogeneity in the market in that many rely on the same types of clever computer models that make them buy the same types of securities at the same time as everybody else. We may increase the precision of our models, but the risk is that this will only cause us to rely ever more blindly on them. As Warren Buffet urges us all, "Beware of geeks bearing formulas."

For the same reason, we should also beware of bureaucrats bearing plans. Strict regulations laying down what you may and may not do will add to this homogeneity. If the government prevents market players from holding securities below a certain credit rating, it means that they will all sell at the same time when a security is downgraded past the limit. If the government's capital requirements favour certain ways of holding assets, all banks will hold their assets in those ways, and they'll all be struck by the same type of problems at the same time.

After each crisis, the authorities investigate what worked better at the time and then force the market players to conform to this "best practice." But all these attempts to make the system as safe as possible really make it extremely sensitive to small blows and changes. As professor Lawrence Lessig of Stanford University concludes, a single virus gaining a foothold in a banking monoculture may knock out the market completely. All deviations, diversity and mutations have been eradicated by precautionary principles and regulations, meaning that there's no resistance left anywhere. At a conference in 2007, the risk-management officer of one company said that his firm was fortunate not to have much historical data on business risk, because if it did, the authorities would immediately force the company to use those data to build risk models and act according to those models, rather than use common sense and develop various scenarios for future risks, as the company preferred to do.

As business became increasingly global through the last decades of the 20th century, energetic work was undertaken to develop international rules on capital adequacy, accounting principles and credit ratings. Politics had to catch up in order to increase stability and safety in a new Wild West. But the result was the same as national policies: homogenization of the way banks and companies viewed risk, regardless of where they came from and where they operated. As long as things are going smoothly, this creates predictability and peace and quiet. But it also gives everybody the same Achilles' heel. The likelihood of that particular part of the body being hit is small, but when it does happen, everybody tumbles to the ground in the same way in all countries.

All the salvage operations and bailouts that have been implemented this time will make the problem seven times worse next time, completely regardless of the effect that they may have in the short term to prevent free fall. Banks and companies have learned that the more they do things just like everybody else -- like the rest of the herd -- the more likely they are to be saved by the government if things go wrong. Because then their operations or their market will be too big to be allowed to fail. Those who think differently and do things their own way -- and thus pose no threat of systemic crisis -- cannot hope for any help. A prudent banker is one who is exactly as imprudent as the other bankers, so that he goes bankrupt when others do, as the early 20th-century interventionist economist John Maynard Keynes is claimed to have said. If we really want to make future financial storms less severe, we should be doing the opposite of what is happening now. We should remove the safeguards and untie the safety nets. We should abolish bailout plans and deposit insurance, so that banks would be forced to think about what risks they can really bear and how much capital they need to cover those risks. We should deprive the credit-rating agencies of their official role, so that investors would have to think for themselves about where to put their money. We should systematically put an end to the protections and guarantees that government authorities give to investors and savers, to leave room for their own common sense and their own responsibility. Those who do not trust themselves should not go anywhere near the riskiest markets.

No regulation has had as great an effect on the risk-taking of the banking sector than the lifeguard role of central banks (and now finance ministries, as well). This has taught the major financial players to take hair-raising risks in the knowledge that they can privatize any gains and socialize any losses because they are too big to fail. The dilemma, however, is that they would never have grown so big if they had not had that safety net. Present-day capitalism is sometimes attacked for being nothing more than a "casino economy." But I know of no casino where the head of a central bank and the finance minister accompany customers to the roulette table, kindly offering to cover any losses.

The problem is, we do not have a casino economy. To borrow a metaphor from child rearing, we have a "helicopter economy." Helicopter parents hover over their kids, preventing them falling and hurting themselves. This means their children never grow up and learn to see dangers for themselves. And for this very reason, such children will eventually fall in more serious and dangerous contexts instead, because risk is part of the human condition. The helicopter economy works in a similar way. The government hovers over the banks and investors, making sure they do not get hurt too badly (and cleaning up any messes they leave behind.) Whenever there is an accident, the benchmark rate is lowered, the central bank extends credit and taxpayers' money is pumped in. The players never learn to look out for risks; they just continue their reckless behaviour, and sooner or later they will fall off a ledge that they were not watching out for and pull us all down with them.

Capitalism without bankruptcy is like Christianity without hell -- it loses its ability to motivate humans to be prudent or respect their fears. If completely removing the safety net from under the financial market is not politically feasible, then it is necessary to make a division so that they protect only pared-down banks engaging in simple operations. All other financial institutions should be told in no uncertain terms that the government's only responsibility to them, if they fail, is to wish them luck.

If we chop down the jungle of government support, protection and requirements, investors and savers will be left to their own devices. That is tough. But thinking for yourself should be tough, because the intellectual exercise it provides will train skills that have lain dormant. And they are necessary. Just think about the hedge-fund fraudster Bernard Madoff, who may have cheated his established and well-heeled clients out of an unbelievable $50 billion. Despite the phenomenal returns reported by his fund, the big institutional investors stayed away. One of them explained that the fund made a non-serious impression, "because when you get to page two of your 30-page due diligence questionnaire, you've already tripped eight alarms and said, 'I'm out of here.'" Madoff's con was not rocket science. But how come so many others entrusted Madoff with their fortunes? Like many other victims, the former textile businessman Allan Goldstein said that he trusted Madoff because he trusted the government. "We conducted our affairs in good faith in the belief that the SEC would never allow this sort of scheme to be conducted. ..."

THERE IS A BROAD consensus that the way was paved for this financial crisis by record-low interest rates, huge deficits and large-scale credit-financed consumption. Today, governments around the world are trying to solve the crisis -- by means of low interest rates, huge deficits and large-scale credit-financed consumption. Many people now agree that the Fed's record-low rates of 2001 to 2005 contributed to the financial crisis. Many observers now think it was utterly senseless of Alan Greenspan to cut rates drastically without worrying about the credit boom that might ensue. I would be more understanding of their moralizing if those same observers were not also demanding that central banks do the same today.

Greenspan simply wanted to avoid depression and deflation in the only way he could. For the same purpose -- avoiding depression and deflation -- the central banks of the world have now cut rates significantly faster and further than he did, without worrying about the inflationary boom that may ensue. The feelings, the intentions and the arguments are the same: Now we have a crisis, tomorrow we will worry about when it comes, in the long run we will all be dead.

It was Karl Marx who said that history repeats itself, the first time as a tragedy and the second time as a farce. But he probably could not have guessed that the interval can be as short as eight years. There is no saying where all this will end, but dark clouds are looming.

http://www.financialpost.com/story-printer.html?id=2069507

More walk away from homes, mortgages

By Stephanie Armour, USA TODAY

When Sharon Sakson was laid off recently from her job as a television writer and producer, she burned through her savings to pay the $2,400 monthly mortgage on her home. But she soon decided it didn't make sense: Her home was worth thousands less than the mortgage she carried on it.

The home had been appraised at $390,000 when she refinanced in 2006, but she estimates it's not worth the $320,000 it initially cost in 2004. So Sakson did what a growing number of homeowners are doing today: She stopped paying and decided to let the bank take her home.

"I'm walking away from my house," says Sakson, 57, who stopped making payments about six months ago on her home in Pennington, N.J. "The bank can have it."

What Sakson did is called a strategic default, or a voluntary foreclosure, and it's fast becoming a major challenge to the government's $75 billion effort to keep distressed borrowers in their homes. Walking away from a mortgage is serious business — it can knock 100 points off your credit score and make you ineligible for a new mortgage for seven years. Yet, about 588,000 borrowers walked away from homes last year, double the number in 2007, according to a recent study by credit-scoring firm Experian and management consultants Oliver Wyman. While home prices are rising, the increases pale compared with overall drops in home prices since 2005 that threaten to push millions more homeowners into Sakson's predicament, owing more than their homes are worth and seeing little chance of rebuilding equity soon.

More will walk away, which will hamper the housing recovery, reinforce lenders' tight credit policies and drag on the economy's recovery, economists say.

"It's increasingly a more important factor driving the foreclosure crisis," says Mark Zandi, of Moody's Economy.com. "As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time."

It's not just economists who are concerned about strategic defaults.

The mortgage unit of Citigroup says one in five borrowers who defaults does so willingly, even though they're able to pay the mortgage. "It's a very large number, and it's a very, very significant risk to the housing recovery," says Sanjiv Das, CEO of CitiMortgage, adding that new government programs to curb strategic defaults may be needed.

Waiting for prices to stabilize

How bad the strategic defaults issue gets may depend on how much more home prices fall and whether the government does more to help homeowners with mortgages larger than their homes' value. Both Zandi and Das suggest further actions to reduce mortgage principal for underwater borrowers.

"A better way to do it may be an incentive to stay current for a period, and after two years of being current, they get a principal reduction," says Das.

Under the government's Making Homes Affordable Program, borrowers are ineligible for refinancings if their unpaid mortgages are more than 125% of the home's market value. Loan modifications under the program do not have any loan-to-value limits.

Nationally, median prices have fallen about 25% from their peak in late 2005, although prices recently have risen compared with prior months this year. The median price in the second quarter — $170,000 — was at roughly the level it was in autumn 2003.

But price declines have been worse in some markets. A closely watched barometer of home prices, the Standard & Poor's/Case-Shiller 20-City Composite Index, shows they have fallen more than 25% in 12 markets and more than 50% in two — Phoenix and Las Vegas — from peaks hit in 2006 or 2007.

Fifteen out of the 20 metro areas saw a rise in prices from July to August, but those increases are not anywhere close to the losses that have already occurred.

The number of borrowers who walk away is expected to increase, along with the rise in homeowners who owe more than their homes are worth. An unprecedented 16 million homeowners currently are underwater, according to Moody's Economy.com. That's about a third of all homeowners with a first mortgage.

Moody's Economy.com estimates the number of underwater borrowers will peak at 17.4 million in the third quarter of 2010.

An even higher estimate comes from Deutsche Bank, which predicted in an August study that the number of homeowners underwater will grow from 14 million (or 27% of all homeowners with mortgages) in 2009 to 25 million homeowners, or 48% of all those with a mortgage, by the time home prices stabilize.

Not coincidentally, strategic defaults have been highest where prices have plunged most, such as California and Florida.

From 2005 to 2008, the number of strategic defaulters went up by 68 times in California, according to the Experian-Oliver Wyman study published in September. During that same time period, the median price for existing, single-family homes in California fell from $522,670 in 2005 to $346,410, according to the California Association of Realtors.

In other geographic regions, the increase in strategic defaulters ranged between 3 times and 18 times more.

The Experian-Wyman study found borrowers with higher credit scores when they applied for their loan were 50% more likely than other types of borrowers to walk away from a mortgage only because they were underwater, even though they could afford to pay. The study was based on an analysis of about 12 million borrowers.

No household would default if the equity shortfall is less than 10% of the value of the house, according to another study this year, done by the University of Chicago, Northwestern University and the European University Institute. But 17% of households would default, even if they could afford to pay their mortgage, when the equity shortfall reaches 50% of the value of their house. That means the market value of a mortgage property is that much below the amount of loan taken against it.

There also appears to be a contagion effect. Borrowers who know someone who defaulted are 82% more likely to declare their intention to do so.

Growing acceptance

"The most disturbing aspect of this is that it's becoming acceptable to do," says Joel Naroff, an economist with Naroff Economic Advisors. "What does that mean down the road for housing and the economy if people are happy to walk away and destroy their credit? They're saying, 'Why pay a high amount if they can get something, even a rental, for less?' "

Because of the time and expense involved in completing a foreclosure, borrowers who decide to walk away often wind up staying in their homes for months after they stop paying their mortgage.

In most states, lenders can go after homeowners for past-due payments, but many fail to take such action when borrowers abandon their properties, because the legal costs are so high.

Short sales, in which lenders agree to the sale of a home for less than the balance of the mortgage, is an alternative to a strategic default. Many lenders are now encouraging them, but Zandi says that alternative may seem too time-consuming for borrowers who want to quickly get out from under their homes.

Janet Speer, 51, isn't happy to be walking away from her 200-year-old home in Royersford, Pa., but she doesn't feel ashamed. Speer says she was paying about $1,400 a month for her home, which was appraised at about $155,000.

After getting laid off last year, Speer said, she tried to modify her mortgage to more affordable terms but was denied because her unemployment benefits and alimony didn't count as income. Speer stopped paying on her mortgage in September 2008.

She is still living in the home and waiting to be foreclosed upon. Speer is saving her unemployment benefits for an apartment once the bank takes over her home.

"I got letters and calls from the bank at first, but they stopped," said Speer, who now earns commission income from a job in the health care industry. "I have a three-story house. It's way too big. I just want a little two-bedroom apartment. I don't want this place anymore. I would never have chosen to do this, but it's going to work out."

http://www.usatoday.com/money/economy/housing/2009-11-02-voluntary-foreclosure_N.htm

I think the time is coming when you'll be able to get a house and even a multi-acre property for the equivalent of 10k or so, so long as you have money up front. Maybe a gold coin will be worth 5 or 10k, so you'll be able to buy a foreclosed horse farm for 10k.

I think the time is coming when you'll be able to get a house and even a multi-acre property for the equivalent of 10k or so, so long as you have money up front. Maybe a gold coin will be worth 5 or 10k, so you'll be able to buy a foreclosed horse farm for 10k.

It seems like some of these sellers would rather let the property depreciate than drop the price to where they can sell it. I've watched one house just sit there for about seven years. It has very much degenerated from a 150k property to something worth a lot less. People seem to get fixed ideas on what a piece is worth, and not change it in light of the market.

It seems like some of these sellers would rather let the property depreciate than drop the price to where they can sell it. I've watched one house just sit there for about seven years. It has very much degenerated from a 150k property to something worth a lot less. People seem to get fixed ideas on what a piece is worth, and not change it in light of the market.

That's pretty much it. People get an idea of what their house is "worth", and nothing can change that. Sometimes it's due to a real estate agent who just wants a sign in the yard and doesn't have the tact or integrity to explain to them what the house will most likely sell for, and sometimes it's due to friends or neighbors with no clue telling them what it's worth [a lot of people base their price on what others "sold" their house for, when they're really being told an exaggerated price]. Part of this is also because most local governments will continue to raise the "tax value" even as the houses depreciate, so that they can squeeze more money out of the homeowners, and some people base their idea of value on that number or on "estimates" by online services such as Zillow, which draw their valuations from tax data and other unrealistic comparisons.

Deeds and Titles
December 1, 2009

REMEMBER! These columns are my opinions only. I think every word I write is true, or I wouldn't write them. So with that warning, let me tell you my opinion about a matter that affects hundreds of thousands of unfortunate homeowners who are in foreclosure. I'm not, and I'm sure you the reader aren't either, but if you know someone who is, this might be of help. I have a client in Hawaii, who I tried to tell this to, and she either didn't do it, or her attorney was and is a fool. Here goes:

You can't sell your car if you don't have a title. The car title, boat title, truck title, tractor title, motorcycle title, locomotive title, airplane title, or whatever, is your proof of ownership. When you finance the item, the lender holds the title till the loan is paid. Agreed?

When you buy a home, it has a deed with it. The deed is the title to the home, proof of ownership, just like a car title is proof of ownership of the car. When you get a mortgage on the home, you assign and give the deed to the lender. When the mortgage is paid off, the lender signs off and gives the deed back to you. If he is owed money, he has the deed till the loan is paid in full. Agreed?

With Freddie and Fannie having 'packaged' and sold 'packages' of deeds, loans, and other paper around the globe to unwary buyers, who knows where the deeds are to homes now being foreclosed upon? The deeds could be in foreign nations' piles of paperwork, or could be totally gone. With failed banks, unscrupulous mortgage brokers and lenders, the deeds to foreclosed homes could be not only unavailable, but even un-traceable. Get the point?

You can't sell a car without the title, and you don't own a home without having the deed to it. How can a supposed 'lender' say he owns the home and wants it back, if he can't prove he owns it by producing a deed to the home? I am not saying he doesn't have a note of some sort, or maybe a copy of a note, but that is no more sufficient than selling a car without the genuine, original title. Can't be done. Or if it is done, the buyer will be unable to get tags, because he doesn't have a real, genuine, original title to the car. Same with a home? Why not? Suppose someone with the deed came along and tried to foreclose, after someone without a deed was successful?

This has been through court several times already, and guess what? The entity attempting to foreclose, has lost. Without the deed, the court has ruled that the entity foreclosing, without a deed, has no grounds on which to foreclose. How can he, if he can't show a deed (title) to the property? Where does that leave the homeowner? As far as I am concerned, he owns his home, or does, till a deed can be produced, which in thousands of cases can never be produced. How can he ever sell? Maybe he can't, but then again, maybe he can live there rent free till the cows come home.

Isn't this just due to the bankers? Let 'em stew in their own self created pot. If you lose the title to your car, you can get a duplicate. If the deed to your home is missing, can you apply for a duplicate? I don't know, but if I were being foreclosed upon, I'd certainly try to find out and explore every nook and cranny before I vacated. I'd hire a good lawyer to defend me too. Pass this on to anyone who may need it.

P.S. I'm so tired of seeing black faces on the news every day, who have committed the most heinous of crimes. The latest is the one who shot and killed four white police officers in a coffee shop, who, fortunately is dead, thanks to a cop. Ask a prison guard which race is the majority of his population. Ask any cop which are his greatest offenders. Black males between the ages of 15 and 35, commit 50% of the crimes, and are but 2% of the population. Recently, a group of dozens of blacks were rounded up who were doing nothing but killing white and Hispanics, because they were white or Hispanic. Grace Kelly's brother was jogging down East River Drive in Philly years ago, and was mugged, "because you're white." Muslim extremists are doing to Muslims, what criminal blacks have done to other blacks, and that is make us afraid of all of them.

Please! If you don't NEED the dollars, do not sell your metals to "take profits." You may never be able to buy them back again at a profit. What is the point in selling true, historic money, for un-backed, printing press scrip? Who knows when there will be a correction? Everyone around the globe is buying and wanting gold, not just in the U.S. Don't gamble with your precious metals!

http://www.coloradogold.com/archive/Deeds_and_Titles-913.html

By Kathleen M. Howley and Dan Levy

Dec. 17 (Bloomberg) -- Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”

Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier.

As defaults on the biggest mortgages rise, borrowers such as Steve Holzknecht are turning to short sales to exit loans that now are larger than the market value of the house. In such a transaction, the lender agrees to accept less than a 100 percent payoff on a mortgage to expedite the property’s sale.

Holzknecht, 53, last month cut the asking price for his 7,280-square-foot home in Kirkland, Washington, by $550,000 to $1.25 million, lower than the balances of his two mortgages. Holzknecht, the former owner of Four Suns Inc., a Seattle luxury homebuilder that went out of business two months ago, constructed the Craftsman-style home in 2000. He declined to identify his lenders or the amount he owes.

Common Plight

“It’s not uncommon to see this situation on the high end of the market -- homes selling for less than it would cost to build them,” said Holzknecht’s agent, Joe Flick of Roanoke Group in Seattle. The property came on the market eight months ago priced at $1.85 million, he said.

Porter Michael Peterson, a 33-year-old linebacker for the National Football League’s Atlanta Falcons, bought a mansion near Tampa, Florida, four months ago for $1.1 million -- almost half the amount of the mortgage taken out by the sellers three years earlier, according to real estate records. Reggie Roberts, a spokesman for the Falcons, didn’t return a call seeking comment.

Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn’t break out short sales by size of mortgage.

Upside Down Mortgages

“You are just starting to see the tip of the iceberg with luxury short sales,” said Adrian Heyman, owner of Property Advisors, a real estate broker in Scottsdale, Arizona. “A lot of wealthy people are upside down in their mortgages and they just can’t afford the second or third vacation home anymore.”

There are 114,000 home loans of more than $1 million, according to First American. About a quarter of all mortgaged homes in the U.S. have loan balances bigger than their current value, known as being upside down or underwater, the data company said.

The Dow Jones Industrial Average lost more than half its value as it tumbled to a 12-year low in March. The number of U.S. households with a net worth of more than $1 million, not counting primary residences, fell to a five-year low of 6.7 million last year from a record 9.2 million in 2007, according to Spectrem Group, a Chicago-based consulting firm.

The financial-services industry was among the hardest hit by the recession. While Goldman Sachs Group Inc. set aside a record $16.7 billion in the first nine months of the year for employee bonuses, some Wall Street executives will see pay cuts, according to Johnson Associates Inc., a New York-based compensation-consulting firm.

Distress

Year-end bonuses for people at hedge funds, asset- management firms and insurance companies probably will drop an average 20 percent, the firm said.

“There’s a lot of distress,” said Tracy McLaughlin, co- owner of Morgan Lane Real Estate in Ross, California, north of San Francisco. “You have hedge-fund guys whose funds evaporated and a year-and-a-half later they’re still not working.”

The entry-level segment of the housing market was aided this year by an $8,000 first-time buyers tax credit that pushed resales to a 6.1 million annual pace in October, the highest since February 2007, the National Association of Realtors said in a Nov. 23 report.

President Barack Obama signed a bill last month extending the program into next year. The new version keeps the first-time buyer benefit and makes a smaller credit available to some move- up buyers. It can’t be used for homes priced above $800,000.

Luxury Market Left Out

The Federal Reserve set out in January to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans. The 30-year fixed rate for so-called conforming loans that can be bought by Fannie Mae and Freddie Mac dropped to an all-time low of 4.71 percent in the week ended Dec. 4, according to McLean, Virginia-based Freddie Mac, the second- largest U.S. mortgage financier. The rate rose to 4.81 percent last week.

The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans, according to Keith Gumbinger, vice president at HSH Associates, a mortgage-data company in Pompton Plains, New Jersey. That’s quadruple the historic spread.

“There is no refinance market for you if you are underwater and outside the Fannie and Freddie framework,” Gumbinger said. “High-end neighborhoods are all suffering from the same problems of diminished income at a time when there is little equity to work with.”

Trapped by Market

Masoud Bokaie, co-founder of engineering firm BORM Associates Inc. in Irvine, California, owes $2.6 million on a 3,664-square-foot house with marble floors and granite counters about 10 miles (16 kilometers) away in Newport Beach. He’s waiting to hear whether lenders Luther Burbank Savings and Wells Fargo & Co. will approve a short sale.

He received an offer last month “close to” the loan balances, said Shirley Cameron, his agent at Coldwell Banker Platinum Properties in Irvine, who declined to specify how much. Bokaie said he doesn’t want to pay $7,000 a month in net costs including the property’s mortgages and taxes when real estate values in the area continue to tumble.

“What’s the point when the market is going in the other direction?” Bokaie said in an interview.

The U.S. median home price was $173,100 in October, 25 percent lower than its July 2006 peak, according to the National Association of Realtors. Prices fell 7.1 percent from a year earlier, the slowest pace of the year.

More Declines Expected

“The reason the low end stopped falling is because the government stepped in with affordable loans,” said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the world’s largest bond fund. “There is no political will to bail out a million-dollar house.”

Luxury home prices probably will drop another 5 percent before reaching a bottom in September 2010, according to Sam Khater, senior economist at First American.

Those declines may lead to losses on jumbo mortgages that dwarf the “haircut,” or discount to full value, that banks take on short sales or foreclosures of moderately priced homes, said Rodriguez, the agent with JM Group in Miami.

“When the bank takes a loss on a $3 million property it’s a lot bigger than the loss on a home with a $150,000 mortgage,” Rodriquez said.

http://www.bloomberg.com/apps/news?pid=20603037&sid=aQED_96QBBkk

Debtor's Dilemma: Pay the Mortgage or Walk Away

http://s.wsj.net/public/resources/images/NA-BC818_WALKAW_NS_20091216184045.gif

In Down Real-Estate Market, Homeowners Are Deciding to Abandon Their Loan Obligations Even if They Can Afford the Payments

By JAMES R. HAGERTY and NICK TIMIRAOS

PHOENIX -- Should I stay or should I go? That is the question more Americans are asking as the housing market continues to drag.

In good times, it would have been unthinkable to stop paying the mortgage. But for Derek Figg, a 30-year-old software engineer, it now seems like the best option.

Mr. Figg felt trapped in a home he bought two years ago in the Phoenix suburb of Tempe for $340,000. He still owes about $318,000 but figures the home's value has dropped to $230,000 or less. After agonizing over the pros and cons, he decided recently to stop making loan payments, even though he can afford them.

Mr. Figg plans to rent an apartment nearby, saving about $700 a month.

A growing number of people in Arizona, California, Florida and Nevada, where home prices have plunged, are considering what is known as a "strategic default," walking away from their mortgages not out of necessity but because they believe it is in their best financial interests.

A standard mortgage-loan document reads, "I promise to pay" the amount borrowed plus interest, and some people say that promise should remain good even if it is no longer convenient.

George Brenkert, a professor of business ethics at Georgetown University, says borrowers who can pay -- and weren't deceived by the lender about the nature of the loan -- have a moral responsibility to keep paying. It would be disastrous for the economy if Americans concluded they were free to walk away from such commitments, he says.

Walking away isn't risk-free. A foreclosure stays on a consumer's credit record for seven years and can send a credit score (based on a scale of 300 to 850) plunging by as much as 160 points, according to Fair Isaac Corp., which provides tools for analyzing credit records. A lower credit score means auto and other loans are likely to come with much higher interest rates, and credit card issuers may charge more interest or refuse to issue a card.

In addition, many states give lenders varying degrees of scope to seize bank deposits, cars or other assets of people who default on mortgages.

Even so, in neighborhoods with high concentrations of foreclosures, "it's going to be really difficult to prevent a cascade effect" as one strategic default emboldens others to take that drastic step, says Paola Sapienza, a professor of finance at Northwestern University. A study by researchers at Northwestern and the University of Chicago found that as many as one in four defaults may be strategic.

Driving this phenomenon is the rising number of households that are deeply "under water," owing much more than the current value of their homes. First American CoreLogic, a real-estate information company, estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes' value, and 2.2 million of those households are at least 50% under water. The problem is concentrated in Arizona, California, Florida, Michigan and Nevada.

Josh Cotner, who owns an insurance agency, says his mortgage balance is about $100,000 more than the market value of his home in Gilbert, Ariz. Mr. Cotner could rent a bigger home nearby for $600 a month, far below the $1,655 he now pays on his mortgage, home insurance and property tax. He says he recently stopped making mortgage payments because his lender wouldn't help him reduce the principal on his loan under a federal program in which he believes he is qualified to participate. Given the sometimes lengthy legal process of foreclosure, he may be able to stay in the home for at least another nine months without making any payments.

Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower's other assets. "We will try to reduce people's payments if they have a hardship," says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co. "But we have a financial responsibility to get people to pay what they owe if they can afford it."

Steven Olson, a loan officer and roof installer in Roseville, Minn., defaulted in 2007 on a plot of land in Florida he had bought as an investment. "I thought I could move on with my life," he says. But the lender, RBC Bank, a subsidiary of Royal Bank of Canada, sued him, seeking to make him pay more than $400,000 to the bank to cover its losses on the loan. Mr. Olson has hired a Florida lawyer, Roy Oppenheim, to resist the claim. An RBC spokesman declined to comment.

States where lenders generally can pursue such legal claims include Florida and Nevada but not California and Arizona, where laws generally prohibit lenders from pursuing other assets of mortgage borrowers. A new Nevada law will protect many borrowers from these judgments if they bought a home for their own use after Sept. 30, 2009.

Another risk for defaulters is that banks could sell the rights to pursue claims to collection agencies or other firms, which could then dun the borrowers for up to 20 years after a foreclosure. Such threats appear to deter some borrowers. A recent study from the Federal Reserve Bank of Richmond found that under-water borrowers were 20% more likely to default in a state where mortgage lenders can't pursue claims on other assets than in those where they can.

Brent White, an associate law professor at the University of Arizona who has written about this issue, says homeowners should make the decision on whether to keep paying based on their own interests, "unclouded by unnecessary guilt or shame." He says borrowers can take a cue from lenders that "ruthlessly seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility."

But it isn't just a matter of the borrower's personal interest, says John Courson, chief executive of the Mortgage Bankers Association, a trade group. Defaults hurt neighborhoods by lowering property values, he says, adding: "What about the message they will send to their family and their kids and their friends?"

In Mesa, another suburb of Phoenix, low prices are helping to draw buyers who may walk away from other homes. Christina Delapp bought a house out of foreclosure in July for $49,000 in cash. She says she will stop paying the mortgage on another home she still owns in Tempe if she can't sell in the next few months for more than the $312,000 that she owes.

Ms. Delapp, who has been jobless for 18 months, says that the new home is part of her survival strategy. "I feel very fortunate," she says. "Regardless of what happens to my credit, we've managed to put together the best safety plan that I possibly could."

Mr. Figg says that deciding to default on his loan was "the toughest decision I ever made." He worried that if he ever loses his job he would be marooned in a home that he couldn't sell for enough to pay off his loan, limiting his ability to find work in other parts of the country: "I couldn't move up. I couldn't move down. I couldn't move out of the city. It was a very claustrophobic situation."

By moving to an apartment, Mr. Figg expects to lower his costs by about $700 a month. He plans to put that into his savings account and says he is willing to rent for the next five years or so.

Lenders are guilty of having "manipulated" the housing market during the boom by accepting dubious appraisals, Mr. Figg says. "When I weighed everything," he says, "I was able to sleep at night."

Write to James R. Hagerty at bob.hagerty@wsj.com and Nick Timiraos at nick.timiraos@wsj.com

http://online.wsj.com/article/SB126100260600594531.html?mod=rss_Today's_Most_Popular

Nice Home. Where’s the Rest of It?

by John Collins Rudolf

The author of the Craigslist posting in Las Vegas made no effort to disguise his or her intentions.

“Stripping House – Before Foreclosure,” the ad declared, offering potential buyers the cabinets and countertops, the sinks and toilets, the doors, the appliances, the sprinklers. Even the palm and citrus trees in the yard were for sale, with a catch.

“You dig,” the author advised.

In Nevada and other states hit hard by the housing crisis, stripping fixtures and appliances from homes in foreclosure has become commonplace. Craigslist, the Web site for classified ads, functions as a bazaar where stripped items are sold openly. Often, the stripping is not done by strangers. It is done by the owner, just before the bank forecloses on the mortgage and takes the property back.

http://www.lewrockwell.com/spl/stripping-houses-before-foreclosure.html

[Gary North commentary]

Housing prices rose rapidly after 1996 because of the FED’s policies of monetary inflation under Greenspan. After 2000, they soared.

Rents did not soar. They rose, but not nearly so rapidly as housing prices. Keep this in mind.

A house’s price performs more like a stock than like a roll of toilet paper. Prices are imputed to a house. Lenders lend lots of money to buyers to buy a house. Most houses do not sell in any given year. The prices paid for houses are imputed to other houses in the neighborhood.

Who loses money on a house? The lender, who lends the money to a borrower, who signs a series of documents. The lender buys a dream: repayment. But he loses money.

The borrower buys a house with borrowed money. He loses his down payment, if any. He does not lose any additional money. That was what the lender lost.

Part of this house is like toilet paper. It gets used regularly. But most of the house is a dream. "Housing prices never go down. I’ll get rich." Or "nobody will be able to evict me, because I will pay my mortgage and taxes."

When housing is bought on the basis of "I’ll get rich," the market begins to resemble a stock market. When it is bought on the basis of "I can live here for what I can rent," it is more like the toilet paper market.

The government’s statisticians use an imputed rent to estimate the appropriate number for evaluating the price of shelter. This is the correct procedure conceptually. This is "house as toilet paper," not "house as an investment."

When "house as an investment" took over people’s thinking, we got a housing mania. We got house-flipping. We got a cable show called "Flip This House." We got greed. Now we have fear.

The skyrocketing price of housing under Greenspan was not reflected in the consumer price index. Rents were. This was as it should be.

The collapsing price of housing under Bernanke has not been reflected in the consumer price index. Falling rents have been. This is as it should be.

What went up came down. Housing prices rose rapidly. Rents didn’t. That was why the housing boom under Greenspan was a bubble. He denied that it was a bubble. He was either lying or else he did not understand the economics: specifically, the pricing of capital. The price of a capital asset is based on its expected stream (dream) of income, discounted by a risk factor (default) and the prevailing rate of interest.

"Flip this house" has become "jingle mail": send the lender the keys and walk away.

http://www.lewrockwell.com/north/north798.html

[comment from Lew Rockwell]

NY Times: ‘Walk Away From Your Mortgage’
Posted by Lew Rockwell on January 9, 2010 02:14 PM

From Roger Lowenstein and the heart of the power elite, more proof that houses still have far to fall, and the big banks and Fanny-Freddy too. Also proof that Americans are beginning to see houses for what they are in reality, not “investments,” but consumption goods, like cars and refrigerators. After all the nutso Keynesian propaganda on spending and debt as the path to prosperity, people are shedding debt, in proper and improper ways, and cutting spending in every way possible. Saving, contra Keynes, builds civilization. Americans are also rediscovering the truth that being a landlord is an important and specialized role in the division of labor, and that most of us are better off as renters rather than owners.

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?em

...the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go.

I was working in a warehouse 3 years ago and had a debate on housing with a college student home on summer break. Nice guy--not that much younger than me--but eaten up with Keynesianism. Or more to the point, whatever his mommy professors had fed him.

Sunbelt. Southeast Georgia. Statesboro. Student was from rural farm family. Housing boom. College town. Refugees from the Black cesspool of Savannah. Also largest farm county in state. Fields converted from cotton/peanuts to subdivisions almost by the week. Largest number of banks per capita of anywhere I've ever lived. Crazy.

It was common for me and another guy to observe how we didn't know how people in Statesboro could afford to live in those houses. The wage level doesn't support it, and the newest subdivisions were pushing into the 600k-700k range for only slightly above average homes. No "ammenities," mind you. House House House.

I made the comment that I was better off renting, even though my rent was too high for a wage earner--being driven-up by a dearth of rental properties in a rural community and the artificial demand of college students and their parents' money.

I could hardly have gotten a worse "scolding" from the college student if I'd goose-stepped across the room. I was informed that housing is the best investment there is and always goes up, accompanied by the liberal/student "you're an idiot" surprised scowl. I was also informed that it is well documented that buying is better than renting. I responded that real estate does not always go up, as anyone owning his family's farm 140 years ago would have known, since Sherman came through that very area. Memories are short!

He wouldn't admit he was wrong, though. It was like the issue of race. I've never forgotten the incident because it seemed to be such a point of faith with him. I wonder if he's learned anything given the "Housing Crisis" that ensued. Probably not!

If an asset starts at a dollar and fifty years later is 2 dollars, it "rose over the long term," even though it rose to 10 and fell to a quarter in the intervening years. It was a "good long term investment," and only a fool would deny it. "Don't you see the chart?!"

That doesn't even factor the value of the dollar.

Alex, you may have seen this paper from Brent T. White at the University of Arizona Law School.

http://api.ning.com/files/CdXtKqMgxHL4M8EYE8FhdO8KVYCEx0nMLUYAjpPIbVo_/walking_away_paper.pdf

It's called "Underwater and Not Walking Away: Shame, Fear, and the Social Management of the Housing Crisis" Arizona Legal Studies Discussion Paper No. 09-35 Oct. 2009

The gist is that individuals are always expected to honor their financial contracts, while banks and corporations break contracts all the time, be they purchase orders, development/hiring tax breaks, etc, etc. The massive bailout of the banks is the best (or worst) example of this duplicity.

When it comes to mortgages--or more specifically to individual mortgagors--banks pull out the "shame card," as if there were a moral issue and not a business contract. The bank, of course, would have no compunction about breaking the contract were the roles reversed. And the bank never mentions that it is complicit in the debacle, having made the loan.

White was on CNBC in November (I think) and he was set-up for one of the "money honeys" to denigrate him in a "debate." I was impressed with his poise in handling their idiocy. The following is the video of his appearance.

http://www.cnbc.com/id/34207654

When it comes to mortgages--or more specifically to individual mortgagors--banks pull out the "shame card," as if there were a moral issue and not a business contract. The bank, of course, would have no compunction about breaking the contract were the roles reversed. And the bank never mentions that it is complicit in the debacle, having made the loan.



This is part of the Christian Credo . I 've heard preachers tell their audience , they must repay everything they owe even after declaring bankruptcy .

Besides , most good moral folk ( read; whites ) want to pay what they believe they owe , out of a sense of fairness and justice . The cons just love to exploit this sincere belief . Exploiting the goodness of people's nature for the benefit of evil .

The jews even exploit this sense of obligation in the girls they trick into White Slavery . They tell the girls they are obligated to work for the money spent in their purchase . Then , when the girl is sold to another procurer , he pulls the same con , saying she must work to pay for her purchase plus interest . So the girl is trapped into a never ending debt by the belief that she owes something . That , combined with intimidation , threats , drugs and constant surveillance , keeps her trapped in the sex trade .

There is no moral obligation to these counterfeiters. I say there is a right, if not obligation, to scam the scammers.

The "banking" cartel is not a legitimate business, nor is the IRS.
Act accordingly. Paying back fractional reserve loans is just another way of sucking joo cock.

Mich. Included In Fraud Investigation

DOJ: Nearly 500 Arrests In mortgage Fraud Probe


WASHINGTON -- The Justice Department announced Thursday that investigators have made nearly 500 arrests since March in a major crackdown on mortgage fraud.The nationwide initiative called Operation Stolen Dreams is the largest collective enforcement effort aimed at confronting the problem of mortgage fraud, Attorney General Eric Holder told a news conference. It involves 1,215 criminal defendants in cases that uncovered more than $2.3 billion in losses.

The Justice Department also has engaged in civil enforcement actions to recover more than $147 million in the operation.Two Countrywide companies will pay $108 million to settle allegations that they inflated the fees that homeowners paid.Hundreds of FBI agents are working on task forces with other law enforcement agencies to combat a type of crime that poses "a risk to our economic stability" as a nation, FBI Director Robert Mueller told the news conference.The Justice Department said the probe has resulted in significant criminal cases in Chico, Calif.; Miami; Detroit; Duluth, Minn.; New Jersey, and Atlanta.

In Detroit, investigators broke up a "ghost loan" mortgage scheme in which the conspirators allegedly posed as mortgage brokers, appraisers, real estate and title agents. They recruited over 108 straw buyers and obtained some 500 mortgages totaling more than $100 million. The alleged mortgage fraud scheme in Miami targeted the Haitian-American community. One of the defendants advertised herself as someone who could assist with immigration issues. The defendant also said she could provide assistance with the manager of a government-sponsored housing program. The defendants in the case used the personal information they gathered to fraudulently buy various properties without the permission of Haitian residents.

In Chico, Calif., one of the biggest home builders in the area was sitting on unsold new homes as the housing market cooled in 2006. The builder sold the homes to straw buyers at inflated prices, then rebated tens of thousands of dollars on each home to shell companies controlled by the buyers' agents. The lenders were unaware of the rebates. The Justice Department said that to date, 38 of the homes are in foreclosure. In New Jersey, the servicing manager of U.S. Mortgage pleaded guilty for his role in the fraudulent sale of more than $136 million in mortgage loans to Fannie Mae and other investors. http://www.clickondetroit.com/news/23936771/detail.html

There is no moral obligation to these counterfeiters. I say there is a right, if not obligation, to scam the scammers.

The "banking" cartel is not a legitimate business, nor is the IRS.
Act accordingly. Paying back fractional reserve loans is just another way of sucking joo cock.

The money was created for the house and the debt was paid through your signature and the promissory note. That's all the money needed. They trick you into paying twice.

I think the time is coming when you'll be able to get a house and even a multi-acre property for the equivalent of 10k or so, so long as you have money up front. Maybe a gold coin will be worth 5 or 10k, so you'll be able to buy a foreclosed horse farm for 10k.

That'll be the time to buy for sure. Maybe that's when the mestizo invaders will start buying homes en mass.

Biggest defaulters on mortgages are the rich

Wealthy simply see loss of home as one bad investment and walk away

by David Streitfeld
The New York Times

updated 7/9/2010 6:46:09 AM ET


LOS ALTOS, Calif. — The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars is seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

Copyright © 2010 The New York Times

http://www.msnbc.msn.com/id/38158763/ns/business-real_estate/

they are simply monetarily wealthy !

http://www.youtube.com/watch?v=GTAiw8LtIbQ&feature=mpt%3Atop_stories

Professor Robert Shiller discusses why the index on home prices continues to decline.

OPINION DECEMBER 30, 2010

Home Prices Are Still Too High

They would have to decline another 20% just to get back to the historical trend line.

By PETER D. SCHIFF

Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.

Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.

Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.

By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that set off a national mania for real-estate wealth and a torrent of temporarily easy credit.

http://si.wsj.net/public/resources/images/ED-AM799A_schif_D_20101229164503.jpg

If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.

In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.

Mr. Schiff is president of Euro Pacific Capital and author of "How an Economy Grows and Why it Crashes" (Wiley, 2010).

http://online.wsj.com/article/SB10001424052702304173704575578190261574342.html

Home Prices Are Still Too High

They would have to decline another 20% just to get back to the historical trend line.



Not "would have to." Two sides to the equation, two solutions. The prices of other assets in the economy could rise with housing staying steady. A real back-door mean reversion, right up the ol' kiester.

Jew Schiff knows the score, but he's careful to shift the discussion to government regulation and away from central bank currency manipulation, even though criticism of the latter is his very claim to fame. 'tis a very canny move. What other purpose can this dude serve than as a kosher false flag for the Fed-critical Tea Party/Ron Paul bunch?

Now is the time to sell, real estate consultant says

People who have been delaying putting their homes on the market should do it soon because prices may go down 5% to 8% as banks unload a glut of repossessed properties, Steve Harney tells agents.

By Mary Umberger, Reporting from Chicago
January 2, 2011

Sell now, avoid (some) regret later.

That was Steve Harney's advice recently to a roomful of real estate agents. Harney is a housing industry consultant who told the assembled agents of John Greene Realtor in Naperville, Ill., that they should tell clients who have been sitting on the fence about selling that the time is now — if they want to sidestep more marketplace competition in a few months.

Or, as he put it, the cork in the dam is about to pop.

That "cork" is banks' indecisiveness. The "water" behind the dam is their stockpile of foreclosed homes, which has been growing with a vengeance for a couple of reasons, Harney said.

Banks have been in a state of limbo this year about what to do with repossessed houses, and so they have mostly held on to them in order not to add to the nation's oversupply of homes for sale, Harney told the agents.

"The banks have been saying, 'There has to be a number [the market] can hit where we can keep the river going without flooding the valley,'" he said.

Apparently, he said, the nation hit that number recently, as prices reached a relative level of stabilization. A Dec. 17 report from Re/Max, for example, said sale prices dropped "only" 1.7% from last year in its 54-city survey, which would indicate general price equilibrium.

But before you break into applause, consider that while the banks were waiting for that sign of stability to decide when to put their holdings on the market, they also were foreclosing at a rapid pace.

"In August, the number of houses banks took back was up 49% over the year before, and September was the greatest month in history for repossessions," Harney said.

That's bad for individuals, of course, but necessary, in Harney's view, for the housing market to heal itself.

Then, the robo-signing mortgage-document fiasco unfolded, causing major lenders to put new foreclosures on hold for a while. But as that situation begins to inch toward resolution, banks are resuming foreclosures, which is only putting more pressure on the dam, Harney said.

With the general agreement that the market has hit some long-awaited neutral spot, the banks have their hand on the cork, Harney said. He, among others, expects that cork to come out by the second quarter, as lenders push 3 million or 4 million (as seen by foreclosure-data firm RealtyTrac) to 8 million (as forecast by Morgan Stanley) foreclosed houses onto the market.

As a result, the burgeoning inventory should push prices down 5% to 8%, Harney said, although gloomier views foresee a 20% drop.

Harney is among those who believe that the worst is generally over for the market, and that the inventory mess and lending issues will work themselves out in 18 months or so as pent-up buyer demand begins to reassert itself.

Meanwhile, he said, selling earlier this year will probably net a better return than late.

"If you have a $500,000 house in Chicago, and the price drops 5%, you've just lost $25,000," he said. "That's why I'm telling agents, 'Don't let sellers wait till spring; they're going to lose money.' "

But what does that mean for buyers this year? Why should they buy from those early-year sellers if the prices are going to drop further?

Harney good-naturedly espouses a kind of logic that seems endemic to the real estate industry (and drives some economists crazy): That it's always a good time to buy — and to sell.

"There's no good news or bad news, just news," Harney said. "Every time a house rises in value, there's a person who makes money and a person who says, 'Darn!'

"And every time a house loses value, there's a person who says, 'Darn!' and a person who says, 'I got a steal!' "

Buyers, he said, should take a look at those recent charts that show mortgage interest rates creeping up and consider how much it might cost them to wait.

"That cost is going to go up, even as prices go down," said the former owner of a New York real estate brokerage. "Now is the time to buy."

Umberger writes for the Chicago Tribune.

http://www.latimes.com/business/realestate/la-fi-umberger-20110102,0,6685941.story

OPINION JULY 11, 2011

A Home Is a Lousy Investment

Today's young people would be foolish to imitate their parents and view ownership as the cornerstone of personal finance

http://si.wsj.net/public/resources/images/ED-AN884A_bridg_NS_20110710165902.jpg

By ROBERT BRIDGES

At the risk of heaping more misery on the struggling residential property market, an analysis of home-price and ownership data for the last 30 years in California—the Golden State with notoriously golden property prices—indicates that the average single family house has never been a particularly stellar investment.

In a society increasingly concerned with providing for retirement security and housing affordability, this finding has large implications. It means that we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We've diverted capital from more productive investments and misallocated scarce public resources.

Between 1980 and 2010, the value of a median-price, single-family house in California rose by an average of 3.6% per year—to $296,820 from $99,550, according to data from the California Association of Realtors, Freddie Mac and the U.S. Census. Even if that house was sold at the most recent market peak in 2007, the average annual price growth was just 6.61%.

So a dollar used to purchase a median-price, single-family California home in 1980 would have grown to $5.63 in 2007, and to $2.98 in 2010. The same dollar invested in the Dow Jones Industrial Index would have been worth $14.41 in 2007, and $11.49 in 2010.

Here's another way of looking at the situation. If a disciplined investor who might have considered purchasing that median-price house in 1980 had opted instead to invest the 20% down payment of $19,910 and the normal homeownership expenses (above the cost of renting) over the years in the Dow Jones Industrial Index, the value of his portfolio in 2010 would have been $1,800,016. The stocks would have been worth more than the house by $1,503,196. If the analysis is based on 2007, the stock portfolio would have been worth $2,186,120, exceeding the house value by $1,625,850.

In light of this lackluster investment performance, and in the aftermath of the recent housing-market collapse, why is there such rapt attention to the revival of the homebuilding industry and residential property markets? The answer is that for policy makers whose survival depends on economic recovery, few activities have such direct, intense and immediate positive economic impact as new home construction.

These positive effects are transitory, however, when local economies have insufficient permanent employment to justify a constant level of demand for new housing stock. Existing housing does little to create new employment beyond limited levels of service employment. By contrast, a business investment in the amount of the several hundred thousand dollars represented in the value of a house would likely create many permanent jobs and produce income, profits and competition. As with most things, the benefits of building new homes come with a sobering caveat: What becomes of the work force once the party is over?

Home values may gain value over time, but home equity is locked-in until the house is sold. The profits may then be reinvested or spent, creating significant stimulative effects, but usually this happens when market conditions are strong, exacerbating unsustainable market booms. When troubled assets are dumped, or when defaults occur during weak market conditions, the trough is deepened.

Housing markets may be forever doomed to cyclicality for many reasons, but public policies that stimulate new construction or home purchases by tax and financing subsidies, reduction of qualifying incomes, buyer credits, mortgage backstopping, and preferential zoning and permitting, only intensify these cycles. Efforts to reduce loan balances and to create special rescue programs have reduced the security of loans, challenged the enforceability of contracts, and driven up real borrowing costs. Nearly a third of our states do not allow lenders the recourse provisions necessary to go after a borrower's personal assets in case of default on a residential mortgage. The sanctity of mortgage obligations has become the rough moral equivalent of the 55-mile-per-hour speed limit.

There is also a misconception that paying off a home mortgage is a path to financial or retirement security. The reality is that tapping the equity is expensive: Home-equity loans or lines of credit made with low qualifying incomes often command high interest rates and costs. If an emergency occurs—the loss of a job, or a business setback—it's likely that the same conditions creating the problem will lower the value and impede the marketability of the home and curtail the availability of financing for a buyer. Funds set aside for emergencies should always be liquid assets.

Is it wise for coming generations to continue to view ownership as the cornerstone of personal finance? Young people planning for retirement increasingly face a choice between house payments and contributions to retirement accounts. They simply can't afford both. With the specter of looming cuts in Social Security and other entitlement programs, or even possible systemic insolvency, the challenge for tomorrow's retirees is income self-sufficiency.

A nation of house buyers becomes captive to the economic cyclicality caused by bursts of construction activity, and it is not lifted or sustained by the limited levels of service employment related to existing housing. By contrast, a nation of business startups and investors supports our capital markets and creates long-term employment, income, exports and the myriad technological advancements desperately needed by an expanding American society.

New home construction and the markets for existing homes should be recognized as activities secondary to, and dependent on, employment. Healthy job markets create healthy property markets, not the reverse. Housing demand driven by job growth creates conditions capable of sustaining a stable level of construction employment, attracting private equity investment, sustaining competitive private debt markets, encouraging capital growth, and ensuring the lowest possible housing prices.

Owner-occupied homes will always be the basis for healthy and stable neighborhoods. But coming generations need to realize that while houses are possessions and part of a good life, they are not always good investments on the road to financial independence.

Mr. Bridges is professor of clinical finance and business economics at the University of Southern California's Marshall School of Business.

http://online.wsj.com/article/SB10001424052702304259304576375323652341888.html?mod=googlenews_wsj

In 2007 (about a year before the proles realized there was a problem with housing and debt), I got in an argument at work with a guy younger than me--he was still in college--about the prudence of home ownership.

I observed that the large town/small city we were in had more banks per capita than anywhere I'd ever lived--or seen, for that matter. I further observed that the price level of the new homes in the new subdivisions everywhere being constructed was such that I (along with the truck driver also in the conversation) couldn't imagine how all these people were paying for these homes given the general wage level of the area.

The college guy was someone I liked, but he had a bad case of farmboy fever--what happens when an otherwise intelligent person goes off to a diploma mill from a rural area. These sorts invariably have a low self esteem chip on their shoulder and get eaten alive by braindead professors and the propaganda du jour. They eat that shit up in a vain attempt to "be somebody."

I hadn't observed anything that anybody else hadn't seen every day, but it was like I'd insulted his mother or something. His response to me was like some crazy temperance crusader or "anti-racism" schoolmarm. He actually began talking down to me, explaining slowly to me how home ownership was the best investment possible "and it's been proven for a long time, actually."

I observed that it certainly wasn't that way when Sherman came through, and in any event I (and a large section of the local workforce) couldn't afford the going rates.

I've often wondered if he learned anything from that conversation and the subsequent "sub-prime" debacle.

http://chart.apis.google.com/chart?cht=lxy&chs=750x384&chd=e:AAAiBEBmCHCpDLDtEPExFSF0GWG4HaH8IdI.JhKDKlLHLoMKMsNONwOSO0PVP3QZQ7RdR.SgTCTkUGUoVKVrWNWvXRXzYVY3ZYZ6aca-bgcCcjdFdneJerfNfvgQgyhUh2iYi6jbj9kflBljmFmmnInqoMoupQpyqTq1rXr5sbs9teuAuivEvmwIwqxLxtyPyxzTz10W041a182e3A3h4D4l5H5p6L6t7O7w8S809F9W9n94-I-Z-q-7.M.d.u....,efa1dFcJlxj0ejgdhkfoe8apencYfAaofihWetdFcXdufQdHdla5ckZ8XCVgUJUBW0XTWqX0WHVxWXWIVLU7U0WOWXXzYNYTX8X9Y7WgU3VnYeaxgehWe2eggSfrfsi-i0jNjLjGiXh2hshShbhVgohchXgsgchGhrhviChgg8hGgOhXjdlOjuhygtgXgSg2h5kQldm4mkjdi-h8h.hnhhhbiekbmgokrTurzV6H8d-c7f8I3ex4rzojpZofnul3l3&chco=0000FF&chxt=x,x,y,r&chxl=0:|1890||||||||||1900||||||||||1910||||||||||1920||||||||||1930||||||||||1940||||||||||1950||||||||||1960||||||||||1970||||||||||1980||||||||||1990||||||||||2000||||||||||2010||1:|1890-01|2011-01&chxr=2,0,220|3,0,220&chxp=3,130.183299882&chxs=0,666666,12,0,lt,dddddd|2,666666,12,0,lt,dddddd|3,666666,12,0,lt,dddddd&chxtc=0,-384|2,-750&chm=o,FF0000,0,129,5,0

The stock market has gone up for two different reasons. First, general inflation. Second, much lower interest rates. The second reason is over. Interest rates lowered when the feds starting lying about the CPI. Housing was removed and replaced by "owner's equivalent rent." The CPI is weighted and housing was 47% of the weight.

http://i7.photobucket.com/albums/y270/happ65la/los%20angeles/losangelesorangegrove.jpg

http://latimesphoto.files.wordpress.com/2011/01/la-me-snow-scenes02.jpg

Krampus @MyUncleJerry

I think what makes Barney Frank so incredibly arrogant is that he refuses to acknowledge his role in the housing loan crisis which triggered the great recession that made so many of our lives miserable.

For most of his career, Barney Frank was the principal advocate in Congress for using the government's authority to force lower underwriting standards in the business of housing finance. He instituted the measures that forced Fannie Mae and Freddie Mac to include "affordable housing" to subprime borrowers at least 30% of their total portfolio although to be fair that percentage was increased under President Bush and Bush and his Republican counterparts in Congress had no qualms about increasing the percentage.

Still it was Frank's own affordable housing law that required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

But if Frank was so smart he should have recognized the horror of this mistake before it was too late.



...

Krampus @MyUncleJerry

Barney Frank played a central role in the subprime mortgage fiasco because he was the driving force in Congress behind passing legislation requiring Freddie Mac and Fannie Mae to finance subprime mortgages originated by private lenders by buying the subprime mortgages from the private lenders after they were originated by the private lenders.

Before Barney Frank pushed that legislation through Congress Freddie Mac and Fannie Mae were not permitted to finance subprime mortgages. Once the legislation was passed the pool of money available to private lenders to finance subprime mortgages was for all effective purposes limitless.

Then Freddie Mac and Fannie Mae purchased up to a trillion dollars of subprime mortgages originated by the private lenders essentially making the U.S. government holding the bag on the subprime mortgages that subsequently defaulted. Without Frank's legislation that pool of money would never have been available to private lenders.

Sure investment bankers exacerbated the mess through credit default swaps and other voodoo financial instruments but that doesn't mean Frank didn't play a central role in all this.

http://gawker.com/5869494/barney-frank-has-liberated-his-man-boobs

[QUOTE=Mike Parker;1294578]OPINION JULY 11, 2011

A Home Is a Lousy Investment

Today's young people would be foolish to imitate their parents and view ownership as the cornerstone of personal finance

http://si.wsj.net/public/resources/images/ED-AN884A_bridg_NS_20110710165902.jpg

By ROBERT BRIDGES

At the risk of heaping more misery on the struggling residential property market, an analysis of home-price and ownership data for the last 30 years in California—the Golden State with notoriously golden property prices—indicates that the average single family house has never been a particularly stellar investment.

In a society increasingly concerned with providing for retirement security and housing affordability, this finding has large implications. It means that we have put excessive emphasis on owner-occupied housing for social objectives, mistakenly relied on homebuilding for economic stimulus, and fostered misconceptions about homeownership and financial independence. We've diverted capital from more productive investments and misallocated scarce public resources.
[...]
Mr. Bridges is professor of clinical finance and business economics at the University of Southern California's Marshall School of Business. [That's Jew S.C.]

http://online.wsj.com/article/SB10001424052702304259304576375323652341888.html?mod=googlenews_wsj[/QUOTE (http://online.wsj.com/article/SB10001424052702304259304576375323652341888.html?mod=googlenews_wsj[/QUOTE)]

You'll notice that a lot of the articles posted to this thread are by the usual suspects.

Those who've made a million in the stock, bond, real estate, and other markets have done so by operating counter to the trend. Wall Street is not for the little guy.

Advising dumping, much less selling paid-off homes, is a self-fulfilling prophesy that WILL depress home prices and create greater opportunities for investors. Most paper investment vehicles are simply ways their brokers make money: Those of you who had fathers in your home growing-up ever heard anything like you can't get something for nothing? Capital is your tools whether skills, a chest-full of mechanics or home maintenance/improvement tools, a piece of income property, what have you-- it is not cash-- because what you can earn with capital is not as exposed to currency manipulation as holding cash beyond enough to get you through emergencies.

Keep an eye on Iceland becuase those White people decided to give the bankers a little of the bankers' own medicine knowing they'd have to take some lumps. That will continue to be expensive short-term to scare anyone considering it but, in my opinion, they will be better-off in the long run that probably won't be that long.

Right now its a renter's market but do you really believe all those who are buying-up homes at fire sale prices are going to keep rents and interest rates low? Ron Paul acknowledges that a President can't change much by himself. And Austian economists while correct have significantly different views than many of us on many issues. Ron Paul would be a breath of fresh air but, if elected-- and I think he will be elected-- and if not shot, will likely preside during a period of bank-enforced wailing & grashing of teeth to try to drive their training home. Expect to have to do what bankers are doing for the long haul and if you don't have both the financial strength AND stamina then park your "capital somewhere" like trade school or another means of production. If you can't piss in the tall weeds with the big dogs then stay on the porch.

A home mortgage is a tremendous liability and, agreed, not a good "investment." But home ownership without a mortgage isn't so bad if you can pay the property taxes: Don't worry so much about the numbers on the "dollars" it costs to buy things if you have a roof over your head, some food in the pantry, and a way to keep it that way regardless of what the banks, brokers, teachers and other government employees are telling you things cost. Most would rather have someone else with a conflict of interest do the math for them and don't wake up to the magnitude of most major frauds that make finance such a major occupation until their productive years have been greatly consumed, split with an ex-wife, spent on leisure and luxury they can't afford, etc.

Buy a House!
by Addison Wiggin
Daily Reckoning

A little more than a year ago, a very successful professional investor declared, “If you don’t own a home, buy one. If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”

Since that declaration, house prices have continued drifting lower in most parts of the country. The Case-Shiller index of national home prices is down about 4% year over year. Even so, we’re betting this professional investor was merely early...not wrong. US housing isn’t just cheap; it is the cheapest it has been in more than 40 years. And when one considers the possibility that inflation may rear its head soon, housing looks even cheaper still.

If you think we’re crazy, you’re not alone. The housing market is a complete bust right now. The following chart shows the median home price in terms of per capita disposable income. Based on this calculation, home prices are lower than they have been in 40 years!

http://lewrockwell.com/wiggin/wiggin-addison15.1.html

Paul Krugman and Zombie Financial History

by William L. Anderson

Murray Rothbard liked to say that economist often tended to specialize in the area where their knowledge was the worst, and given Paul Krugman's butchery of the historical record, I'd say Rothbard had a good point. Regular readers of Krugman's columns and blog posts and other public statements would believe, for example, that World War II ended the Great Depression, that Jimmy Carter and Ted Kennedy (who were major forces in deregulation during the 1970s) were conservative Republicans, and that the only thing better than war to bring prosperity would be the nationwide preparation to fight an invasion of imaginary space aliens.

As always, whenever Krugman goes on a partisan political screed, truth is left behind, and his recent column is no exception. While I have no problem with his criticizing Republicans, nonetheless I actually would want for him to get his criticisms correct, especially his points that the Republican Party is dedicated to laissez-faire economics and actually cutting the size and scope of government.

Unfortunately, he decides to make essentially this set of claims:
The financial meltdown was purely the fault of private enterprise except for one governmental error: it did not regulate enough;
The GSEs, Freddie and Fannie, had absolutely nothing to do with the meltdown.

Krugman writes:

Start with the big question: How did we get into the mess we’re in?

The financial crisis of 2008 and its painful aftermath, which we’re still dealing with, were a huge slap in the face for free-market fundamentalists. Circa 2005, the usual suspects – conservative publications, analysts at right-wing think tanks like the American Enterprise Institute and the Cato Institute, and so on – insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.

Instead of learning from this experience, however, many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems.

Every piece of this revisionist history has been refuted in detail. No, the government didn’t force banks to lend to Those People; no, Fannie Mae and Freddie Mac didn’t cause the housing bubble (they were doing relatively little lending during the peak bubble years); no, government-sponsored lenders weren’t responsible for the surge in risky mortgages (private mortgage issuers accounted for the vast majority of the riskiest loans).

But the zombie keeps shambling on – and here’s Mr. Rubio Tuesday night: "This idea – that our problems were caused by a government that was too small – it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies." Yep, it’s the full zombie.

The only accusation he left out was that Republicans were responsible for keeping the space aliens away from us, thus nullifying our chances for economic recovery. But, let us take a look at the record, given that Krugman has made some very important claims.

Understand that he is quietly making the larger claim: price signals mean nothing to entrepreneurs; only government regulators and agents can understand the economy and what actually is happening, and that only government, through spending, regulation, and outright ownership and control of the factors of production, can bring about prosperity.

So, let us talk about the government's role in this whole thing. First, he leaves out an important player, the Federal Reserve System, and the fact that neither Alan Greenspan nor Ben Bernanke would admit to the creation of the housing bubble and both continued with their policies of pushing down interest rates and directing funds into the housing market through their statements and actions.

Second, Krugman ignores the simple fact that government is the single largest player in the mortgage business through its policies of encouraging and funding home ownership. To claim that the only influence government had through the housing bubble was not regulating enough is yet another Krugman howler, and his claims that Freddie and Fannie were not lending during the "peak bubble years" and that government agencies did not encourage loans to "sub-prime" borrowers is the typical Krugman rewriting of history.

I'll get to Freddie and Fannie in a moment, but the notion that the banks simply came up with the idea of lending to sub-prime borrowers on their own really does defy history. Yes, it is true that the vast majority of sub-prime loans DID come from the banks, and that their attempts to securitize these loans in order to mitigate the risks were a disaster. I have no problem with this accusation against the Wall Street firms, but there is one thing that Krugman leaves out: the infamous Greenspan-Bernanke "Put."

When the financial deregulation occurred both during the Carter-Reagan years and at the end of the Clinton administration, the government did not get rid of the moral hazard that essentially guaranteed reckless behavior. Both Greenspan and Bernanke time and again promised to "create liquidity" if the banks got into trouble, and when the markets had the trillions of the Fed standing behind them, it is no wonder that they ran off the rails. Moral hazard has a way of encouraging the very actions that lenders and the entities supporting them should not be taking.

Free markets entail both profits and losses, and when the government essentially lets the banks keep their profits but then promises to socialize the losses, why are we shocked, SHOCKED when the banks do the things they did? What Krugman refuses to do is to acknowledge that the players in private enterprise really will respond to the prospect of losses when they engage in risky behavior. Instead, he simply ignores the fact that the banks knew the Fed and the taxpayers were covering their behinds and so they could be free to engage in behavior that anyone with half a brain knew could produce very bad outcomes.

I'll make another point about the crisis: the Austrians were on it long before the Keynesians and the rest of American economists jumped on the bubble bandwagon. Mark Thornton in 2004 wrote:

Signs of a "new era" in housing are everywhere. Housing construction is taking place at record rates. New records for real estate prices are being set across the country, especially on the east and west coasts. Booming home prices and record low interest rates are allowing homeowners to refinance their mortgages, "extract equity" to increase their spending, and lower their monthly payment! As one loan officer explained to me: "It's almost too good to be true."

In fact, it is too good to be true. What the prophets of the new housing paradigm don't discuss is that real estate markets have experienced similar cycles in the past and that periods described as new paradigms are often followed by periods of distress in real estate markets, including foreclosure sales, bankruptcy and bank failures.

Furthermore, while the Austrians may be laissez-faire in their economic viewpoints, they hardly are fans of the banks and they certainly did not believe that the Fed and the housing bubble constituted a new era of prosperity. (For that matter, I warned the property tax appeals board in Allegany County, Maryland, in the spring of 2006 that the current housing situation was a bubble and that it would crash, and that government officials should not make future budget predictions off what we were presently seeing. They told me flat out that I was wrong.)

By leaving out the Fed's "Put" and the other quiet assurances from Congress and the Bush administration that the government had the backsides of the banks, Krugman ignores an important reason as to why the banks ignored price signals and engaged in reckless behavior. While I am sure that Krugman was taught early in in graduate school about moral hazard, his leaving out that important point speaks more to his intellectual dishonesty than it does his lack of economic knowledge. [in other words, krugman is a typically dishonest jew]

Freddie and Fannie

Were the GSEs actually non-players in this whole affair, as claimed by Krugman? First, if that were so, then neither entity would have gone bankrupt in 2007, since they did not have risky loans on their books. While it is true that neither GSE was responsible for the vast creation of the subprime loans and their subsequent securitization, but that did not mean they were minor players in the system at the time.

Veronique de Rugy writes:

Fannie and Freddie contributed to the housing crisis by making it easier for more people to take out loans for houses they could not afford. Beginning in 2000, Fannie and Freddie took on loans with low FICO scores, loans with low down payments, and loans with little or no documentation.

The federal government’s role in the housing market goes back at least to 1938, but that role changed fundamentally in the 1990s when the government made a push to increase homeownership in the United States. At that time, the federal government pursued several policies that were meant to encourage banks to lend money to lower income earners and to give incentives to low income earners to buy houses. The result, as we now know, was a gigantic amount of subprime mortgages at a time when house prices were starting to go down.

In other words, the encouragement to create sub-prime housing loans came from federal policies, something that Krugman ignores. (Krugman apparently wants us to believe that the banks would suddenly create a bunch of bad loans on their own, and with the full knowledge that if they lost money, the government would not be there to force taxpayers to underwrite these bad loans.) Freddie and Fannie did play a role in creating these sub-prime securities, even if Krugman and the NYT want to ignore that fact.

It gets better. Far from being an almost non-existent player in the crisis, we find that the GSEs actually did have large housing portfolios during this time:

...Fannie Mae and Freddie Mac are considered government-sponsored enterprises (GSEs). Although both were, before the crisis, privately financed, the general sentiment was that in the event of a crisis in the mortgage market, the federal government would step in and back the GSEs. In other words, the government implicitly guaranteed Fannie and Freddie's securitized loans. This allowed them to borrow at interest rates below those of the financial markets and to hold much lower capital requirements than commercial and investment banks. The aggregate value of this subsidy has been estimated to range "somewhere between $119 billion and $164 billion, of which shareholders receive respectively between $50 and $97 billion. Astonishingly, the subsidy was almost equal to the market value of these two GSEs."

As a result, by the time the housing crisis began to unfold, Fannie and Freddie had become the dominating force in the secondary mortgage market, providing 75 percent of financing for new mortgages through securitization at the end of 2007. At the end of 2010, they still held about 50 percent of securitized, first-lien home loans.

Economist Russ Roberts also investigated and found that Freddie and Fannie were more like silent partners in the crisis, contra Krugman:

Fannie and Freddie bought 25.2% of the record $272.81 billion in subprime MBS [mortgage-backed securities] sold in the first half of 2006, according to Inside Mortgage Finance Publications, a Bethesda, MD-based publisher that covers the home loan industry.

In 2005, Fannie and Freddie purchased 35.3% of all subprime MBS, the publication estimated. The year before, the two purchased almost 44% of all subprime MBS sold.

We are not speaking of insignificant numbers. Furthermore, as de Rugy points out, Congress and the administration were not exactly non-players in setting the table for a housing crisis:

In addition, lawmakers in both parties enacted policies directed at increasing home ownership rates, resulting in lower mortgage underwriting standards for Fannie and Freddie. Roberts notes that from 2000 on, Fannie and Freddie bought loans with low FICO scores, loans with very low down payments, and loans with little or no documentation. Contrary to Paul Krugman’s assertions, Fannie and Freddie did not "fade away" or "pull back sharply" between 2004 and 2006.

As the following chart from Roberts’ study shows, during that same time Government Sponsored Enterprises (GSEs) bought near-record numbers of mortgages, including an ever-growing number of mortgages with low down payments.

Moreover, as the chart below shows, while private players bought many more subprime loans than Freddie and Fannie, GSEs purchased hundreds of billions of dollars worth of subprime mortgage-backed securities (MBS) from private issuers, holding these securities as investments. (The charts are shown in the Roberts article.)

What Krugman would have us believe is that the government, along with its Frankenstein financial creatures of Fannie, Freddie, and the Community Redevelopment Act, only wanted banks to make sound mortgages with the usual minimum of 20 percent down, good credit scores, and the like. That clearly is nonsense. As Thomas DiLorenzo notes, the only way that banks on their own would have made such risky loans was the fact that federal policies demanded they do so. [ie, queers like jew barney frank trying to push more undeserved assets to useless niggers and illegal aliens, even though they weren't creditworthy]

One does not need to hold the banks to be innocent bystanders to recognize the role of government policy in the financial crisis. Furthermore, while I have no problem with financial deregulation, I DO have a problem with financial deregulation that is backed by moral hazard. Deregulation was supposed to free financial entities to diversify their loan portfolios and to be able to provide liquid capital to entrepreneurs and businesses that had promising and new ventures.

Furthermore, financial deregulation did make possible the revolution in computers and telecommunications, and had we kept the regulatory system Krugman endorses in place, there would be no Apple Computers, cellphone networks, improved transportation, and IBM would still be the industry leader in the dominant mainframe computer business. Since Keynesians know nothing about entrepreneurship and even less about finance, Krugman probably is incapable of understanding how economies grow, still being stuck in the "aggregate demand" intellectual ghetto.

But financial deregulation only could have worked in the long run had the government made banks and financial houses responsible for their losses. By increasing the various government-led financial backstops as deregulation occurred, Congress almost guaranteed more reckless behavior, and no one should be surprised at what happened.

Unfortunately, these tidbits of truth are left out in Paul Krugman's own zombie version of economic history. That this rewriting of history comes on the editorial pages of the New York Times should shock no one. After all, the "Newspaper of Record" has been fabricating the "record" for a long time.

February 16, 2013

William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services. Visit his blog.

http://lewrockwell.com/anderson/anderson358.html

For a system whose mandate is to smooth economic cycles and facilitate commerce, it sure does a shitty job of it. But at least these kikes are getting rich not doing it.

Stockman on FDR and Fannie May, the origins of federal messing the housing market, and the distortions it led to

The New Deal's True Legacy
Chapter 9 – The Great Deformation – The Corruption of Capitalism in America

http://www.lewrockwell.com/stockman/stockman22.1.html

Why Are Your Children Buying Houses for Ben Bernanke?
FREEMANSPERSPECTIVE · Aug 6th, 2013

Every now and then I like to look at government numbers and see what they really mean. I ran into this batch several months ago but hadn’t had time to play with them till now. What I found shocked me so badly that I ran them three times on a calculator and once using exponents. As you’ll see below, these are “Oh my God” numbers.

Here are facts:

The average US house sells for about $300,000, and the Federal Reserve is buying $40 Billion dollars’ worth of mortgages per month. (If that sounds like a bunch of numerical gobbledegook to you, please hang on for just a moment.)

The Fed has been very public about this, by the way. They explain that they are purchasing “mortgage-backed securities” (for your safety, of course), and they surround the discussion in financial-speak. But, in the end, they are buying houses, plain and simple. It’s all there, for those who wish to check.

Now, here are those numbers:

$40,000,000,000 per month, divided by $300,000 per house = 133,333 houses per month.

Let’s round that down to 130,000 to account for the various financing fees and transfer taxes.

So, Ben Bernanke is buying 130,000 houses per month. Kind of shocking, no?

That means that since this program began in September of 2012, the Fed has bought 1.43 million houses.

And, by the way, there is no end in sight.

In Fairness to Ben

Now, to be fair, I should clarify that your kids are not really buying all those houses for Ben Bernanke personally – they’re buying them for his bosses – the owners of the Federal Reserve.

You didn’t think the Fed was owned by the government, did you?

Oh, no. It is owned by the big banks. I’d tell you exactly who, except that no one knows exactly who. We know that people own shares of the Fed banks (there are twelve of them in all), but the US government is keeping the details secret.

Think I’m making that up to be flamboyant? Please, check it out for yourself! They admit that “the big banks” own the Fed, but they never say which ones. A list did circulate in the 1930s, but that was the last time.

How Your Children Are Forced to Pay

You may have heard this before, but if not, hang on to something:

The Fed uses dollars to buy bonds from the US Treasury. These dollars, however, do NOT come from their savings. Instead, they come as a check that is “drawn upon itself.” (That quote is from the Fed’s own documents, by the way – a paper called Modern Money Mechanics.)

In other words, the Fed just makes up the money. They are buying all those houses with money they just make up! (But it’s surrounded with very intricate accounting, of course.)

But it also means that your children have to pay off the bonds!

The Fed sells all those bonds to investors – who will, of course, want their money back, with interest.

So, where will the money for paying off those bonds come from? From taxes, of course.

When a government sells a bond, they are selling a right to their tax receipts. And that means your kids will be taxed to pay it all off.

The Fed will keep the houses, of course, but hidden behind paragraphs of confusing financial and accounting terminology.

Bye Bye Home Ownership

Home ownership in America is falling off a cliff, as you can see in this graph:

http://www.freemansperspective.com/wp-content/uploads/2013/08/ushomeownershiprate.jpg

So, Mr. and Ms. America, get ready to meet your new landlords: Benny and the Banks.

Paul Rosenberg
FreemansPerspective.com

http://www.freemansperspective.com/ben-bernanke-buying-house/