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Posts Tagged ‘Sub-Prime’

NAR Spin Cycle Set To Permanent Press

April 23, 2008 | 1:22 pm |

On Matrix I have long been critical of the NAR’s efforts to spin the market as positive no matter what is happening (there is an alternative to negative spin – it’s called neutral). NAR is a repository of great information so I am not sure what they are afraid of. They don’t make the market. This tactic really represents old school thinking.

I have wanted to visually show how this was done, but alas it never got, well…done. I don’t grab other posts but this time I need to make an exception since it was so brilliantly done (hat tip to reader RentinginNJ, a fan of NJ RE Report via Big Picture). Both Jim Bednar’s New Jersey RE Report and Barry Ritholtz’s The Big Picture are heavily trafficked go to blogs for real estate info.

View original post on New Jersey RE Report

Although Barry makes an interesting point, I’d have to say I see no real change in NAR’s orientation in delivery of information to the press other than the latest release. One slight negative release doesn’t show a trend (3 data points to make a trent I am told). In fact, the press release titles for the prior two months had nothing to do with the data in their reports.

Each press release statement pertains to the corresponding number in the above chart.

  1. “There’s no question there is a strong demand for housing from a growing population.” -David Lereah, NAR Chief Economist

  2. “For the foreseeable future, the demand for homes will continue to outstrip supply” -Al Mansell, NAR President

  3. “We’ve been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream.” -David Lereah, NAR Chief Economist

  4. “We are returning to more balanced markets between home buyers and sellers… We feel confident that housing is landing softly as rates continue to rise.” -David Lereah, NAR Chief Economist

  5. “This is part of the market adjustment we’ve been discussing, with a soft landing in sight for the housing sector. The level of home sales activity is now at a sustainable level. Overall fundamentals remain solid…” -David Lereah, NAR Chief Economist

  6. “Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector which remains at historically high levels.” -David Lereah, NAR Chief Economist “After five years of booming sales, we are now experiencing normal market conditions across most of the country… most owners can expect steadier gains in home values for the foreseeable future.” -Thomas M. Stevens, NAR President

  7. “Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing” -David Lereah, NAR Chief Economist

  8. “Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales, but it’ll likely take some months for price appreciation to rise.” -David Lereah, NAR Chief Economist

  9. Existing-home sales stabilized at a sustainable pace in August -NAR

  10. “…the worst is behind us as far as a market correction — this is likely the trough for sales. When consumers recognize that home sales are stabilizing, we’ll see the buyers who’ve been on the sidelines get back into the market” -David Lereah, NAR Chief Economist

  11. “It looks like we’re moving beyond the low for the housing cycle last fall, and buyers are responding to historically low interest rates and competitive pricing by home sellers. In addition, a tightening inventory of homes on the market is supporting prices.” -David Lereah, NAR Chief Economist

  12. “Fundamentals have improved in the housing market and buyers see a window now with historically-low mortgage interest rates and competitive pricing by sellers,” -David Lereah, NAR Chief Economist

  13. “We also may be seeing some losses as a result of the subprime fallout. However, this is masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers.” -David Lereah, NAR Chief Economist

  14. “Buyers who’ve been on the sidelines may want to take a closer look at current conditions in their area – if they wait for sales to rise, their choices and negotiating position won’t be as good as they are now.” -Pat V. Combs, NAR President

  15. “The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom. Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path.” -Lawrence Yun, NAR Chief Economist

  16. “The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales…Once we get through these disruptions, we’ll get a better sense of where the actual market is in late fall as conditions begin to normalize,” -Lawrence Yun, NAR Chief Economist

  17. “Existing-Home Sales Rise in November, Market Likely Stabilizing” -NAR

  18. “Home sales remain weak despite improved affordability conditions in many parts of the country, but we could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds rate,” -Lawrence Yun, NAR Chief Economist

  19. Existing-Home Sales to Stablize Before Upturn in Second Half of 2008 -NAR

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Akron Is Just Like Iceland, Only With More Rock

April 22, 2008 | 12:05 am | | Milestones |

Every so often a city or location jumps out at me as getting a lot of coverage in the news. Sort of the Six Degrees of Kevin Bacon versus Credit Meets The Housing Market.

I was reading the review of the new blues rock album by one of my favorite bands The Black Keys. They are based in Akron and apparently love it there, despite its deep economic problems including unemployment and foreclosures. Home to Goodyear, Akron has fallen behind other metro areas (incidentally, Rubber Factory is TBK’s best work IMHO).

The following day I read the New York Times article Don’t Hate Me Because I’m Solvent which chronicled an Akron couple who own:

an exquisitely renovated 1913 Tudor house, with six fireplaces, a solarium and a billiards room, which is well within their means, in part because they paid $65,000 (12 years ago).

They have no mortgage and more importantly, the husband is a part time rock musician.

He is 44, the son of an engineer, married for 19 years, and a lifelong resident of Akron. He may also be the only person in the known universe who has both written for “Beavis and Butt-Head” and names “It’s A Wonderful Life” as his favorite movie. Mr. Giffels identifies with the film’s hero, George Bailey.

And what does this have to do with Iceland?

Insofar as Americans think about Iceland at all, it’s as a land whose remoteness belies a vibrant cultural scene featuring hipster titans, like Björk and Sigur Rós, and exceptional social conditions—it’s the top-rated country in the U.N.’s most recent human-development index. But in the financial world Iceland is now a hot topic of discussion for a different reason: many people suggest that it could become the “first national casualty” of the ongoing credit crunch.

Besides the musician reference, Iceland has represented the bright end of the economic spectrum, the opposite of Akron, whose economic problems were in play well before the recent housing boom not unlike it’s rustbelt neighbors, whom the boom largely passed by.

Now analysts are wondering whether the new Nordic Tiger will end up, instead, as “the Bear Stearns of the North Atlantic.”

Although Iceland’s banks avoided subprime mortgages, most of the capital it raised came from foreign investors. With the credit markets drying up, many investors are unwilling to invest in Iceland and the crunch has begun.

Iceland has been swamped by that tsunami because it trusted in the availability of global credit in time for that credit to evaporate. And the fact that Iceland has been so dependent on foreign investors makes those investors even more skittish about investing there: in markets, weakness often begets weakness.

In other words, the global credit crisis is not just about subprime lending. It is about the lack of availability of credit for investment (in Iceland) and an increase in foreclosures (in Akron).

No matter how loud the music was played in either place, everyone’s ears are still ringing.

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[Frank Assessment] Systemic Risk Regulation

April 19, 2008 | 10:27 pm |

The innovation of the financial markets was so rapid that regulators did not have the ability to keep up. I don’t see how free markets can function without defined rules and boundaries when new products are introduced. The financial services sector didn’t understand what was in the products they sold, making an argument against de-regulation – the hallucination of reduced risk: Aspirin or Amphetamines? via Economist’s View.

Congress is trying to do something about it, but it’s a fine line between free and over regulated financial markets.

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said Thursday that the United States is in a recession and that Congress should consider a “financial services systemic risk regulator” to combat the causes of the credit crisis.

Speaking before the Greater Boston Chamber of Commerce, Frank blamed years of anti-regulation sentiment and the technical innovation of securitization, dating back to the 1980s, for the meltdown in the subprime mortgage market and the broader economic slowdown.

“Securitization has severely dissolved the discipline of the lender-borrower relationship,” Frank said, arguing that people have put too much faith in mathematical models. “Diversifying bad debt just spreads the poison.


[Calls & Puts] Day Trading Housing

April 18, 2008 | 1:55 am | |

Floyd Norris’ blog post gave me one of the more rare moments of clarity I have experienced in a while in his blog post: Ponzi Squared.

Sometimes we all get so close to following the housing market that we fail to see the big picture. The crazy illogical and insane lending practices that applied to subprime:

  • No money down
  • No documentation of income
  • Initial below-market teaser interest rate
  • Negative amortization

…effectively created calls and puts for fledgling homeowners.

Call option
The lender was merely allowing the buyer to have a call option on the house. If the market rose, the owner had a chance to sell. And of course we all know that real estate markets always rise. As markets continued to rise, the rating agency models showed this to be a good risk since the default rates were low (but it was really because the market continued to rise).

Exercising a put option
The seller, who has nothing to lose with their no money down payment, simply turns in the keys to the lender.

Wondering why banks are enjoying such large rate spreads despite the FOMC rate cuts? They need to offset financial damage and mitigate future hemorraging due to mortgage loan losses. And a bunch of it is will be caused by homeowners who should not have been homeowners in the first place by the very same lenders they are handing the keys to.


Blowing Credit Nose, US Kleenex Box Is Empty

April 15, 2008 | 12:01 am | |

In the grand scale of things, I never viewed the US as creating the global housing boom. Now that the “contagion” is now crossing the border of the US into other countries via the credit crunch so it’s starting to look like we caused the global downturn. This Monday’s page 1 NYT story: Housing Woes in U.S. Spread Around Globe was about the spread of credit problems across the planet (when towns in Norway are going bankrupt because the AAA mortgage-back securities were full of subprime mortgages, it’s global)

The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices swooning from the Irish countryside and the Spanish coast to Baltic seaports and even parts of northern India. This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes but jobs as well.

During the housing boom of 2003-2006, housing markets were booming from Europe to Australia to India. In fact, many of these markets saw booms before we did. As much as I feel Greenspan contributed to the development of the US credit bubble conditions that we are in now, I don’t think he brought down the planet financial system.

To some extent, the world’s problems are a result of American contagion. As home financing and credit tightens in response to the crisis that began in the subprime mortgage market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other states.

Citing the reverberations of the American housing bust and credit squeeze, the International Monetary Fund last Wednesday cut its forecast for global economic growth this year and warned that the malaise could extend into 2009.

Can someone tell me what effective changes have occurred to rekindle the credit market? I see it’s repair as the key to enabling a housing market bottom.

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[OTS] Foreclosures: From Malaise To Disarray

March 27, 2008 | 12:15 am | |

One of the things I have found particularly aggravating during the past two years has been all the coverage on foreclosure stats. I don’t think consumers (or the media) have much perspective on the stats being produced, mainly by RealtyTrac and their competitor It’s been a groundbreaking effort on their part to collect this data but here’s a sample representing my issue with all this. I actually posted about the foreclosure data perspective problem back in September2006 (I just re-read it and it is relatively coherent) but the communication problem remains.

We see huge percentage increases every single month and yet the typical reader doesn’t really know what these stats mean in the context of all mortgages outstanding other than…it’s getting worse. I don’t think I am alone in getting the feeling that 87.4% of all houses are under foreclosure (left-handed people only, while it’s 92.3% if you include right-handed people).

Here are some examples…

From the New York Times

Statistics on foreclosure are snapshots of a moving phenomenon, and data from the state labor department show 174 foreclosures in Belair-Edison last year, while the Community Law Center, a nonprofit public service group, counted 181; both figures are well below the more than 275 foreclosures in 2001 and in 2002.

From Forbes

In February, Florida trailed only Nevada and California in the percentage of homes in foreclosure. RealtyTrac Inc. said 32,447 homes were in foreclosure statewide in February, up more than 69 percent from February of last year and up more than 7 percent from January.

Back in October 2007, the OTS released the first Monthly Market Monitor (creatively called MMM). It referred to the mortgage problem as the “Mortgage Malaise” (2 M’s if you were wondering) The most recent issue was released on wednesday referring to the mortgage markets in “disarray”. The MMM charts are really useful because they show the pace of foreclosures in an historical context and the amount of foreclosures relative to the amount of mortgages outstanding. The info on these charts are what we need to see more of.

Here’s a housing summary from the March 2008 report:

The slump in the housing market has not only impacted residential construction, but lending and loan performance have deteriorated in concert. Non‐conforming loan originations fell 49 percent in the fourth quarter, as the secondary market for bonds backed by the collateral is still shuttered. According to data collected by Inside Mortgage Finance, approximately $84.5 billion of non‐conforming loans were originated in the quarter ending in December 2007, comprising just 19.9 percent of total loan production. This is the lowest volume of originations ever, and is a far cry from the peak origination period of 2005, when the total reached $1.58 trillion, or 50.4 percent of all production.6 By loan type, jumbo production fell 47 percent in the fourth quarter, plummeting to $44 billion, or less than 10% of all originations. The downturn in Alt‐A and subprime loan production persist, with fourth quarter volume at $27 billion and $13.5 billion, respectively.

In contrast to non‐conforming product, FHA/VA loan production rose steadily in 2007, from a low of $19.0 billion in the first quarter to $31.0 billion at the end of the year. Activity in government‐insured lending was twice that of subprime.

Even Treasury Secretary Paulson is giving us better perspective of foreclosure stats in his speech to the US Chamber of Commerce on Wednesday:

Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.

First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time. Roughly 2 percent of mortgages are in foreclosure. Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.

Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008. These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding. Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures. So we are right to focus many of our policies on subprime borrowers.

There are approximately 7 million outstanding subprime mortgage loans. Available data suggests that 10 percent of subprime borrowers were investors or speculators. This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.

And if you can’t keep track of foreclosures because it’s too confusing, try something simple like converting your phone number into words.

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Housing Political Aspirations Has No Ceiling (Or Dome)

March 26, 2008 | 12:55 pm | | Public |

I have always had what I considered a jaded view of the electorate. Overall I think citizens tend to vote with their wallets.

So I continue to be amazed at the delayed response and awareness over the last year on a federal level to the housing market problem as it related to the economy. The Federal Reserve began to react in late summer, but it was at minimum, a year late. Here we are well into the presidential campaign, and only now, does housing begin to take a bigger role in policy declarations by the candidates.

A few weeks ago, the WSJ published an article and a series of charts that seemed to suggest the current administration, through laissez-faire, had enabled the current housing market downturn.

John McCain has only provided very general recommendations for housing but lacks specific solutions nor does he intend to provide them:

“I will not play election-year politics with the housing crisis,” he said, adding he would evaluate all proposals. ”I will not allow dogma to override commonsense.”

Of course that doesn’t address election-politics to applied to all other issues being discussed. Again, a disconnect on the federal level continues to apply to housing.

”I will consider any and all proposals based on their cost and benefits,” the certain GOP presidential nominee, who has acknowledged the economy is not his strong suit, told local business leaders south of Los Angeles.

Hillary Clinton addressed her approach to the problems only this week.

On Monday, Democratic presidential candidate Sen. Hillary Rodham Clinton proposed several remedies to the home mortgage problems, including aggressive federal intervention to ease the strain on homeowners.

Among her ideas is to create an Emergency Working Group on Foreclosures to deal with the growing foreclosure crisis. These would include Paul Volcker (former Fed Chair), Robert Rubin (former Treasury Secretary) and Alan Greenspan (former Fed Chair). All are distinguished individuals and sharp financial minds. I can’t help but note the irony of having Greenspan on the panel since he was at the helm during the housing market build up and argued that housing was not a problem.

Barack Obama has also proposed more involvement at the federal level with creation of a foreclosure prevention fund, although it is smaller than Clinton’s proposal.

Senator Obama’s proposed $10 billion foreclosure fund is a mere one-third the size of Senator Clinton’s, yet another failure on his part to acknowledge the size and scope of this crisis. When Senator Obama says that Senator Clinton’s plan will “reward people who are wealthy and don’t need it” he shows himself to be out of touch with average Americans. Senator Clinton’s plan only helps subprime borrowers, a population that is disproportionately low-income.”

The problem is, the credit markets won’t likely recover before the fall election and with the economy continuing to erode, housing will likely continue to erode.

So where are we?

In banking jargon, the analogy that housing would be “too big to fail” but I think in political jargon, it’s more appropriate to say the housing/credit market problems are “too big to see.

In other words, let’s not be pigs

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[Housing Blame Game] Better Than PAC, Man

March 20, 2008 | 12:05 am | |

About a year and a half ago I posted about the housing blame game in my post, oddly enough called: [Matrix Commentary] The Housing Blame Game

As the falling housing market shakes financial institutions and pummels Americans in an election year, the nation’s economic woes have surged to the top of voters’ minds. The timely question: To what extent are politicians and regulators at fault?

Since its an election year, it is now fodder for the ongoing presidential election campaign. The Wall Street Journal had a page one story about this yesterday with a pretty neat graphic:

Open larger version.

  • Republicans: In power during the housing price run-up. Cheerleaded riskier mortgage products.
  • Democrats: Pushed homeownership increase. Prevented tough laws on subprime regulation.

The article seems to place more blame on the Republicans but housing has always been political.

As far back as the Civil War, owning a home has been associated with civic virtue and moral behavior. Democratic and Republican administrations alike sought to raise homeownership through subsidies, tax breaks and dedicated agencies.

When George W. Bush took office, that push became a pillar of his “ownership society” campaign. “We want everybody in America to own their own home,” Mr. Bush said at a housing conference sponsored by the White House in October 2002. Earlier that year, he issued a “challenge” to lenders and others in the industry: Create 5.5 million new minority homeowners by the end of the decade. In 2003, he signed the American Dream Downpayment Act, creating a program that would offer money to the poor so they could secure a first mortgage.


Billion Mortgage March: GSEs To Make Waves

March 19, 2008 | 12:57 pm | |

This is huge.

Federal regulators said Wednesday they would allow mortgage finance giants Fannie Mae and Freddie Mac to reduce the capital they are required to keep on hand, a move that could pump $200 billion into mortgage markets.

The rule change was announced by the Office of Federal Housing Enterprise Oversight, (OFHEO), a normally low-profile agency which sets rules for the two government sponsored companies that between them hold or guarantee nearly $5 trillion in mortgages.

Here’s the OFHEO press release.

OFHEO estimates that Fannie Mae’s and Freddie Mac’s existing capabilities, combined with this new initiative and the release of the portfolio caps announced in February, should allow the GSEs to purchase or guarantee about $2 trillion in mortgages this year. This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas.

Fannie Mae and Freddie Mac (as well as FHA) have evolved into critical roles in stabilizing the credit market panic and have assumed important roles in providing greater liquidity to the mortgage markets, a key component in avoiding long term damage to the economy.

The OFHEO assures us that the 20% capital requirement is enough cushion for safety and the GSEs will begin to aggressively raise capital starting now. The $200B in extra funds will allow Fannie Mae and Freddie Mac to buy more mortgage securities and new home loans and increase mortgage guarantees.

Not too sound too rah rah here but I am amazed that we continue to see creative solutions to the credit crisis, seemingly everyday. Of course OFHEO missed the boat while the problems developed but at least now we are seeing some action.

Mandatory reading today: Can’t Grasp Credit Crisis? Join the Club by the NYT’s David Leonhardt. Please read it.

Raise your hand if you don’t quite understand this whole financial crisis.

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[Matrix Zeppelin] a hefty profit, take your family out to dinner, Prolonging, rather deal with higher interest rates, greed and dishonesty, cliches, They are the worst, “fix” value, staight out liar, muck up the works

March 3, 2008 | 12:01 am | |

Well, the Matrix Zeppelin needed repairs, but the turmoil in the credit markets made it difficult to get a loan to make the repairs. But with the stimulus plan rebate check on its way, I decided to put the repairs on my credit card. Here’s a selection of recent comments on Matrix, whose readers cut to the chase:

  • Eliminate AMC’s and their high pressure tactics. They muck up the works mostly, get the instructions wrong, order 1004’s for condo units, forget to give you a unit number, or sales contract, contact phone numbers, etc etc.

  • Who has been a lender for 15 years is just a straight out liar. Terry comments that he or she has not yet to find an appraiser who will fix value. That means that he or she has tried, therefore the problem does exist. I believe Terry is just mad because now he or she will not be able to control a appraiser or appraisal value on a property. I have had on numerous occasions mortgage people call to see if I would push value. I never did and never will.

  • I’ve been a table funding correspondent lender for 15 years and I’ve yet to find an appraiser who will “fix” value for me. Your premise that mortgage brokers are pushing appraisers to set value, in my opinion, means the appraiser is the one to blame, not the mortgage broker. Certainly, there are “crooks” in every aspect of every business. Maybe you should get rid of them and not penalize those that have never had an issue following the lending guidelines.

  • Unless there is a minimum appraisal fee then I see more problems coming from this then good. How is the government going to order an appraisal? What would be different from whats going on with AMC’s now? They are the worst of the worst in terms of pressure and poor training. Somebody better clarify this quick because there is no such thing as a disinterested business

  • When we start to see lots of job listings for asset managers and work-out professionals on et al we’ll know this thing is getting understood and we’re there. Until then we hang in

  • There’s been a paradigm shift in cliches

  • the banks lent 100%+ on the appraised value of the home without looking at ANY supporting documentation. The model is flawed because it does not account for greed and dishonesty.

  • As a buyer, I’d rather deal with higher interest rates and less innovative financial products along with a lower house price. My property taxes will be lower, and I can always refinance if interest rates drop in the future.

  • What’s the point if they’re just going to default a few years later due to ARM resets? Note that I’m not even talking about the abuse from liar loans. If the conforming limits varied by region years ago, I would not have a problem with that. However, introducing this right now (and temporarily at that) will have the effect of prolonging the housing crisis more than necessary.

  • Jon Stewart summed up the “too little too late” observation on the Daily Show last night with the following (paraphrased) quip: “Look, we know your house is in foreclosure … and you lost your job … and you don’t have health coverage. But listen, here’s $400. Take your family out to dinner at a nice restaurant and try to forget we destroyed your economy.”

  • This video makes it seem like all the people who got mortgages needed to refinance or had rate adjustments. While in fact most people never needed to refinance nor did they have rate adjustments. Additionally, of those people that needed to get out of their sub-prime mortgages, a large portion were able to sell their property, which appreciated enough to yield them a hefty profit.

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As Fannie And Freddie Hemorage, Little Incentive To Reform?

February 27, 2008 | 11:29 am | |

Before the champagne bottles could be uncorked by appraisers who felt vindicated by the potential agreement to be reached where Fannie Mae and Freddie Mac would agree to only buy loans from lenders who took some logical precautions on the valuation of the collateral (install the protections for competent appraisers, by creating firewalls), I think we all need to consider what the incentive for change their approach to lending would require, and its made me more skeptical after a good nights sleep.

Both GSE’s are likely to show reduced earnings throughout 2008 because of the rise in default rates. Their stock prices have fallen by more than half since last summer.

As of December, 2.2% of all prime mortgages were at least 60 days past due, up from 1.5% a year earlier, and the highest level since 1998, according to First American CoreLogic. More than one-fifth of subprime loans were 60 days or more past due. A check of delinquency rates for large, high-quality mortgages shows that “credit quality is now deteriorating sharply even for prime mortgages,” Morgan Stanley analyst Kenneth Posner wrote in a recent research note reiterating a negative outlook on Fannie. Delinquency and foreclosure rates for jumbo loans in December were more than double the previous January.

So if their don’t ask, don’t tell mentality still exists (avoiding focusing on the problem of realistically estimating the value of collateral pledged against mortgages by lenders), why would the GSEs want to place additional burdens on the lending industry right now which would slow down sales activity?

They need the flow of new mortgages through their pipeline to boost potential revenues don’t they? Investors seem to be more likely to buy conforming paper than jumbo paper these days but as new problems come to light, that sense of safety with the GSE’s could vanish too.

I suspect that NY AG Cuomo is going to have to play hard ball to get this deal done with Fannie and Freddie. His office has been impressive on this front and gets what the problem. From the news coverage yesterday, it sounds like negotiations have been ongoing for a long time (probably due to their scope of suggested change) and there will be future litigation if it doesn’t happen.

There probably needs to be the same actions from other state AG offices to turn this ship around. AG’s in Ohio, Colorado, Massachusetts and Georgia have been particularly active on dealing with the appraisal situation but not in the national context like New York has.

If investors can’t feel comfortable with appraised values as they relate to mortgages, the perceived risk level goes off the chart. Let’s start dealing with common sense and reality and break away from past practices. If an appraiser can’t perform their valuation without pressure to hit the needed number, the credit markets are not going to get comfortable with the risk/value relationship in mortgage lending.

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Suburbs Are The Next Slum

February 27, 2008 | 10:29 am |

In the widely email distributed article this week from The Atlantic (and what’s up with the Atlantic these days? an even better read.): The Next Slum? Christopher Leinberger suggests that the problems of the inner city may work their way into the suburbs.

Thats a logical argument given the trend toward new urbanism …city’s rule, suburbs drool, as they say.

Crime and vacant properties seem to be on the rise in suburbia but I think that phenomenon is attributable to the rise in foreclosure rates due to subprime and credit problems. Many houses were built for people who egenrally couldn’t afford them or they were very vulnerable to an up tick in mortgage rates. Take Stockton, CA for example.

Arthur C. Nelson, director of the Metropolitan Institute at Virginia Tech, has looked carefully at trends in American demographics, construction, house prices, and consumer preferences. In 2006, using recent consumer research, housing supply data, and population growth rates, he modeled future demand for various types of housing. The results were bracing: Nelson forecasts a likely surplus of 22 million large-lot homes (houses built on a sixth of an acre or more) by 2025—that’s roughly 40 percent of the large-lot homes in existence today.

However, I would think builders would adapt to the change in demand. I am not entirely sold on the logic presented since the lack of demand for McMansions would drop their value and bring more demand. Nelson appears to be suggesting a nation full of empty homes.

In the past decade, as cities have gentrified, the suburbs have continued to grow at a breakneck pace. Atlanta’s sprawl has extended nearly to Chattanooga; Fort Worth and Dallas have merged; and Los Angeles has swung a leg over the 10,000-foot San Gabriel Mountains into the Mojave Desert. Some experts expect conventional suburbs to continue to sprawl ever outward. Yet today, American metropolitan residential patterns and cultural preferences are mirror opposites of those in the 1940s. Most Americans now live in single-family suburban houses that are segregated from work, shopping, and entertainment; but it is urban life, almost exclusively, that is culturally associated with excitement, freedom, and diverse daily life. And as in the 1940s, the real-estate market has begun to react.

However, the idea that urban centers could see more home price appreciation than the exurbs or even the suburbs over the next few decades is plausible. It’s already occurring.