Housing Doom

“He who defends everything defends nothing.” - Frederick the Great

November 20th, 2009

Flag Day at Igor’s Dungeon

Doom Transcripts: Index & Guide

Doom’s collection of transcripts of AEI seminars now features a date-order list of our transcripts and the same list in the context of close to a hundred further events that throw light on some aspect of the subprime crisis, housing bubble or credit crunch while offering an audio and/or video record.  These all now have designation codes in case we want to create transcripts of some of them in future.

This made it necessary to change the designations on a couple of our existing transcripts.  So a lot of the links in the participants and questioners sections needed to be moved around and fixed.

The under-construction transcript VI.B has now been re-designated VI.C.

Of the nine completed Doom AEI subprime transcripts one, III.A, has been re-designated IV.C.

Doom regrets any inconvenience this may have caused to our readers.

November 20th, 2009

Foreign Cenbank Holdings of US Obligations Weekly Update — to November 18, 2009

The Board’s H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to include information related to TALF LLC, a limited liability company formed to purchase and manage any asset-backed securities that might be received by the Federal Reserve Bank of New York (FRBNY) in connection with the Term Asset-Backed Securities Loan Facility (TALF). This information will be presented in a new table 8, "Information on Principal Accounts of TALF LLC." … - For release2 at 4:30 p.m. EDT November 19, 2009

Looks like the H.4.1 table itself is a bit newsworthy this week. If I’m reading the above correctly, they’re now providing a bit more transparency on some of their bailout numbers. Should be a long weekend for the number crunchers ;)

After last week’s nothingburger the central banks really came alive. The Fed’s own MBS holdings surged $74.469 billion, and the cenbanks bought big in treasuries, and even added a fair hunk to their agencies holdings. This week’s Reuters report1 was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.2 Here is Doom’s updated CSV version3 of the agencies and treasuries foreign central bank holdings data set.

The treasuries buy rebounded to a big $12.557 billion.

The agencies number increased $4.616 billion, the biggest up move in a long time. Interestingly, the Agency Debt number has been pretty stable for the last 7 weeks. Are we entering another extended period where that figure barely moves?

This week the total US obligations number for the cenbanks blasted up $17.173 billion.

Read the rest of this entry »

November 20th, 2009

Op-Ed Friday: Fighting For The Right To Hang

It’s Friday, and if you are part of our Doom’s typical demographic, likely as not you are an affluent white male- and this issue might not be near and dear to your heart.  For this mother of five though, I’m watching the battle of HOAs vs. clotheslines heating up- and I’m on the side of the clotheslines: [Hat tip Freedom's Phoenix!]

PERKASIE, Pennsylvania (Reuters) - Carin Froehlich pegs her laundry to three clotheslines strung between trees outside her 18th-century farmhouse, knowing that her actions annoy local officials who have asked her to stop.

Froehlich is among the growing number of people across America fighting for the right to dry their laundry outside against a rising tide of housing associations who oppose the practice despite its energy-saving green appeal.

Although there are no formal laws in this southeast Pennsylvania town against drying laundry outside, a town official called Froehlich to ask her to stop drying clothes in the sun. And she received two anonymous notes from neighbors saying they did not want to see her underwear flapping about.

"They said it made the place look like trailer trash," she said, in her yard across the street from a row of neat, suburban houses. "They said they didn’t want to look at my ‘unmentionables.’

It’s a tougher economy out there these days, and people are looking to save money where they can:

Although exact numbers are difficult to come by, a Pew Research study found the number of Americans who deem the clothes dryer a necessity has dropped significantly since 2006 — from 83 percent to 67 percent. While that statistic doesn’t indicate how many people have switched to line-drying, anecdotal evidence suggests that for both economic and environmental reasons, more people are doing so.

HOAs however, are the natural enemies of clotheslines:

Florida, Utah, Maine, Vermont, Colorado, and Hawaii have passed laws restricting the rights of local authorities to stop residents using clotheslines. Another five states are considering similar measures, said Lee, 35, a former lawyer who quit to run the non-profit group.

His principal opponents are the housing associations such as condominiums and townhouse communities that are home to an estimated 60 million Americans, or about 20 percent of the population. About half of those organizations have ‘no hanging’ rules, Lee said, and enforce them with fines.

9.6% of American homeowners are behind on their mortgages and budgets are tight.  If it helps keep people in their homes, HOAs might consider that a clothesline in the backyard beats a foreclosure in the neighborhood.

Read the rest of this entry »

November 20th, 2009

Will Court Ruling Help Kill Commercial Real Estate Lending?

A recent court ruling forcing Citibank to continue funding a New York development might be a case where developers win a battle, but loose the war:

A ruling that Citigroup Inc. must resume lending to a stalled Syracuse, N.Y., mall project could push banks to revisit how they draft construction-loan agreements.

The New York State Supreme Court Appellate Division, in a split decision, upheld an lower court’s injunction requiring Citigroup to continue funding a $155 million construction loan on the Destiny USA Holdings project, even though the bank believes the project is a failure. Citi says the ruling is unprecedented in the state’s history. Now, New York lawyers are pondering how to write construction loans that would allow banks to stop funding what they believe are failing projects.

The ruling isn’t a total victory for Robert Congel, the developer behind Destiny. The court required the company to post a $15 million bond before Citi has to fund the rest of the money, roughly $29 million.
 

Why is this so significant?

This ruling definitely puts further strain on the market for construction financing.  Lenders are willing to take a bit of risk if the yield is right and it is clear that they have the option to back out of their commitment if the developer does not live up to his end of the deal.  But I can’t think of a single lender who would walk into a risky financing—no matter how high the yield is—if they cannot be certain on whether or not they have the right to back out when the developer fails to perform.  NY State Supreme Court’s decision in this case does nothing to provide that certainty.  Until lenders and their counsel can figure out a way to build that certainty back into their lending agreements, we can say goodbye to ground-up construction financing.

Commercial real estate lending might not be the only casualty of court rulings:

Read the rest of this entry »

November 19th, 2009

Toxic Loans Ruled Cause Of Death For Banks

This had to be an easy call- no one suspected the Butler.  Toxic loans have been found to be the cause of death for many banks: [Hat tip Freedom's Phoenix!]

The coroner’s report left no doubt as to the cause of death: toxic loans.

That was the conclusion of a financial autopsy that federal officials performed on Haven Trust Bank, a small bank in Duluth, Ga., that collapsed last December.

In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses.

At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.

How’s this for understatement of the year?

“We all could have done a better job,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation.

The New York Times indicated that one of the dangers now is that banks will be held to a too rigorous standard.  Not everyone agrees:

The Obama Administration is prepared to do anything, including dramatically lowering mortgage lending standards, to keep real estate prices inflated, as demonstrated by statements, reports and events in the month of October.

First came the Federal Housing Authority inspector general’s report on the FHA’s lender approval process, which found that FHA was missing or ignoring relevant information, failing to document loans, not preventing convicted financial criminals from participating in its lending program, and in most other ways failing to "ensure that lenders met all applicable requirements." The IG’s spot check revealed, for example, that just one out of 22 approved applications contained all the documentation needed to meet the FHA’s own standard for guaranteeing a loan.

So which way will the wind blow then?  Will banks be too strict, or too lenient?

Read the rest of this entry »

November 18th, 2009

Good News- Housing Starts Down

 

Wall Street may not like it, but lower housing starts is good news for the housing market:

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent (±8.7%) below
the revised September estimate of 592,000 and is 30.7 percent (±8.3%) below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent (±7.5%)* below the revised September figure of
511,000. The October rate for units in buildings with five units or more was 48,000.

Here’s how one analyst sees the situation: [Thanks L!]

Read the rest of this entry »

November 17th, 2009

There are none so blind to bubbles as those who will not see

 

Former Federal Reserve Chairman Alan Greenspan said it’s impossible to know that you are in a bubble when you are in one.  It isn’t impossible for most of us, but it sure seems to be tough for the Fed. Federal Reserve Vice Chairman Donald Kohn who seems to have the same problem:

Kohn said it’s wise to beware of "false positives" when assessing potential asset bubbles, such as with rising stock or commodity prices. A Fed action to correct a bubble might include hiking interest rates, which could harm a wider financial recovery, he said.

Read the rest of this entry »

November 17th, 2009

Morgage Delinquencies Are Up 58% From Last Year

Unemployed people can’t pay their mortgages.  Unemployment is up, and so is mortgage delinquencies:

The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion.
That’s up 58 percent from 3.96 percent a year ago.

Being two months behind is considered a first step toward foreclosure, because it’s so hard to catch up with payments at that point.

CNBC quotes F.J. Guarrera, vice president of TransUnion’s financial services division who said:

Two things must get better before mortgage delinquency rates start reversing themselves, he said: home values and unemployment. "Until we see improvement in both of those areas, it’s possible that it will take longer for delinquency to improve," Guarrera said.

Guarrera said he doesn’t expect declines until the middle of 2010.

Read the rest of this entry »

November 16th, 2009

More Can Still Go Wrong With Housing

 

Chris Low, chief economist of FTN financial recently said:

[A] stable housing market is essential to a stable banking system, and he believes “everything that can go wrong in the housing market already has.”

I would disagree. One of the things that housing can still suffer from is attrition.  Some problems get worse over time.

One of the factors that can wear over time for housing is employment.  There is no such thing as a "jobless recovery"

With the unemployment rate at 10.2%, the stock market might take some comfort in the thought that we are closer to the peak in the unemployment than the trough.  Unfortunately, we are likely a lot closer to the beginning of a long, jobless recovery than the end.

If 200,000 jobs could be added monthly to nonfarm payrolls starting in November (and that will not happen in November), we would recover all of the jobs lost so far in the Great Recession sometime around April 2013.

Unemployed people don’t buy houses.  Underemployed people don’t buy houses.  People who are worried about their jobs don’t buy houses. [Unless they are downsizing.]

I don’t agree with the politics of John Buell, a political economist, but I have to give him his point here: 

One need only look at a number of widely accepted measures of economic health. While nearly one of six American workers is unemployed or underemployed, almost a third of our productive facilities stand idle. While homelessness continues to grow, nearly one in seven rental properties stands vacant and foreclosure rates rise.

Put aside Economics 101 and ask a simple question. Isn’t there something wrong with an economy that fails to steer unemployed workers into the unused plants? And if some policy achieved this purpose, wouldn’t more workers earn enough to rent those vacant homes and apartments?

Americans often pride themselves on looking at facts on the ground. I find it hard to deny that as an economy we have already produced enough homes and factories that everyone could live comfortably.

Read the rest of this entry »

November 16th, 2009

AEI Subprime VI: Complete Annotated Transcript

1:36:34 … This crisis was caused by massive government subsidies to purchase homes by people who couldn’t really afford them. So what does Congress do? They pass an $8,000 tax credit for people who can’t really afford to buy a home to buy one. I mean, how stupid can you get? - John Makin

Doom Transcripts: Index & Guide

Housing Doom is pleased to present a complete unauthorized annotated transcript for the American Enterprise Institute’s October 22, 2009 event "The Deflating Bubble, Part VI: The Lessons of the Bubble and Crisis".1 The event site has a variety of resources including both an audio and a video of the proceedings. There is as yet no official transcript.

Table of Contents

[link navigation works best when full article displayed]

  1. 0:00:00 - Alex Pollock intro (preview post)
  2. 0:11:43 - Tom Zimmerman presentation (preview post)
  3. 0:26:50 - Chris Whalen presentation (preview post)
  4. 0:37:03 - Nouriel Roubini presentation (preview post)
  5. 0:54:19 - John Makin presentation (preview post)
  6. 1:08:20 - Desmond Lachman presentation (preview post)
  7. 1:21:56 - Panel discussion (preview post)
    1. 1:22:08 - Roubini discussion
    2. 1:22:59 - Whalen discussion
    3. 1:23:57 - Lachman discussion
    4. 1:25:24 - Makin discussion
    5. 1:28:01 - Whalen question
      1. 1:28:18 - Makin response
      2. 1:29:19 - Pollock response
    6. 1:29:51 - Pollock (with Roubini) aside on Canada
  8. 1:31:26 - Q&A (preview post)
    1. 1:32:00 - Bert Ely question
      1. 1:33:04 - Zimmerman (with Roubini) response
      2. 1:34:29 - Whalen response
    2. 1:34:58 - Brian Gardner question
      1. 1:35:43 - Makin response
      2. 1:36:59 - Whalen response
    3. 1:38:18 - Steve Votaw question
      1. 1:38:59 - Lachman response
      2. 1:40:38 - Roubini response
      3. 1:41:22 - Zimmerman response
      4. 1:41:49 - Pollock response
    4. 1:42:11 - Jack Phelps[ph] question
      1. 1:42:54 - Makin response
      2. 1:43:24 - Whalen response
    5. 1:44:40 - John Serrapere question
      1. 1:46:02 - Roubini response
    6. 1:46:27 - anonymous question
      1. 1:47:44 - Whalen (with Pollock) response
      2. 1:48:44 - Roubini response
      3. 1:49:52 - Makin response
    7. 1:50:42 - Barry Wood question
      1. 1:51:12 - Roubini response
      2. 1:54:36 - Whalen response
    8. 1:55:02 - Christine Eisner[ph] question
      1. 1:55:24 - Zimmerman response
    9. 1:57:22 - Dale Kinsella[ph] question
      1. 1:57:55 - Makin response
    10. 1:58:44 - Pollock brief wrap-up
  9. 1:59:06 (end)

Alex Pollock: [0:00:00] Good afternoon ladies and gentlemen. [slide2 1]

When in the course of financial events we have a huge bubble and the inevitable succeeding huge bust, a decent respect for the the opinions of mankind requires that we try to learn something useful from the painful experience. That’s the point of these deflating bubble series of AEI conferences, which you all have so kindly supported with your participation. So welcome to Deflating Bubble Roman numeral VI, "The Lessons of the Bubble and Crisis."

Read the rest of this entry »