Housing Doom

It’s Friday, and the markets continue to ignore a weakening economy and focus on possible interest rate cuts:

U.S. stock futures rose on Friday, indicating stocks would open extending gains for a fourth day straight, with neither a speech by from Federal Reserve Chairman Ben Bernanke nor economic data derailing expectations of interest rate cuts.

"Bernanke hinted as much by placing significant emphasis on the recent deterioration in consumer spending and on signs of softening in labor market conditions, as well as financial conditions, which appear to have sealed the deal on a rate cut and raised the possibility of 50 basis point cut," said Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.

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Hat tip to M for this one from the Arizona Republic this morning- the Arizona Department of Financial Institutions, the mortgage regulator for the state of Arizona, has a mountain of fraud complaints, but no money to tackle them:

Arizona’s mortgage regulator has shut down a handful of Valley firms for fraud and other illegal lending practices this year, but at least 40 other investigations are stalled because there is no money to fund them.

A wave of mortgage fraud and other bad lending practices that spread across metro Phoenix led to a record number of consumer complaints against mortgage brokers, originators and lenders.

The Arizona Department of Financial Institutions has only two consumer investigators to keep up with those complaints, more than 800 of them this year. Five years ago, the state agency received fewer than a few hundred mortgage complaints a year.

To tackle the flood of complaints this year, the regulator hired independent investigators. But a plan to keep paying those contractors stalled during the last legislative session because some lawmakers said the mortgage industry should self-regulate.

Now, dozens of investigations into mortgage fraud and other bad loans are waiting until the agency’s investigators can get to them. A typical mortgage investigation takes months or more to track because of extensive paper trails and the many people involved.

"We were shorthanded to begin with, but now we have run out of money," said Felecia Rotellini, superintendent of the Department of Financial Institutions.

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I’m not generally inclined to cite Cramer, but when he’s right, he’s right. [Many thanks to Jim Baird for forwarding me his article yesterday.]

Baird says of Cramer:

Jim Cramer, the boo-yah yelling financial advisor of CNBC’s Mad Money, recently left Wall Street and went out to California. What he saw there was a housing market in full-blown crisis.

Touring the Inland Empire, Cramer viewed the decimation created by the current housing and mortgage meltdown: in street after street, neighborhood after neighborhood the homes sat with no buyers. The only noticeable occupants were the mosquito’s whose eggs found safe harbor in the rain-filled pools of foreclosed homes.

Cramer returned from his trip deeply impacted- and recalled his experience in this video. He said things that many without media platforms have said before- that the people on the east coast, including the Fed, do not understand how bad housing really is- that the housing market is in crisis.

The same Cramer I, and many others, had critiqued as representing the schism in thought between Wall Street and Main Street, was now telling his money-managing friends that they were out of touch.

I highly recommend the video- no rants or cut-up bears- just a somber Jim Cramer saying how companies with large California portfolios will cost the economy billions of dollars, and go bankrupt. [And if they are still playing that K-Fed commercial at the start- I think it's pretty funny.]

Baird said:

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OK, maybe the last three didn’t make the list, but according to Blanche Evans of Realty Times today, a recent Harris poll indicates that people don’t consider real estate agents in a "prestigeous" line of work:

Congratulations to teachers and firefighters. Condolences to real estate agents and bankers. Were they undercut by the bursting of the so-called housing bubble or because they simply don’t treat people with enough integrity?

While the survey only measured 23 professions, it’s no surprise that scientists ranked higher than actors. But it is surprising and delightful that over 60 percent of adults believe firefighters have the most prestigious job. Also ranking high were military officers, doctors and nurses.

Dropping lower in prestige were accountants, stockbrokers, and business executives … hey, you starting to see a trend here, Wall Street?

All kidding aside, I’m really crying with you. Journalists were ranked by less than 20 percent of adults as prestigious.

But the real razzies were reserved for real estate agents, bankers, stock brokers, union leaders and actors — with only five percent of survey participants’ approval.

The survey didn’t explain just what exactly makes a job prestigious, but the lesson is clear — if you save lives, your job has high prestige. If you screw around with people’s money, you have low prestige.

The problem isn’t that there aren’t great professionals in the industry- but that those professionals are outnumbered by a flood of people who did little more than turn in their boxtops.  It doesn’t help that Lawrence Yun, the chief economist of the NAR, insists on embarassing himself and his employer with his monthly unrealistic prognostications in the face of dreary data.

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The National Association of Realtors has released its October report.  Sales are down, prices are down, but inventory is up:

Sales of existing homes fell further in October even as more homes came on the market, driving the supply of homes to the highest level in 22 years, the National Association of Realtors reported Wednesday.

 

Sales dropped 1.2% to a 4.97 million seasonally adjusted annualized pace in October, the real estate advocacy group said. The sales pace is the lowest since 1999, when the group began tracking combined sales of single-family homes and condos.

Sales are down 20.7% in the past year and are down 31% from the peak of 7.21 million two years ago.

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Hat tip to L for what has got to be today’s wierdest link. Global Homes, a Florida homebuilder, has apparently found a way to diversity and maintain their profits in a slowing housing market- by giving homes to folks who  grow marijuana for them:

PORT ST. LUCIE, Fla. — Port St. Lucie police seized 420 pounds of marijuana and 400 marijuana plants during an 18 home grow house raid in St. Lucie County Tuesday morning.

Investigators arrested 10 people in the raid, including the owner of Global Homes, a home building company that police said has connections to several houses in the case. Detectives would not comment on what they believe the company’s involvement was with the grow houses, but they did say that the case was similar to previous busts in which immigrants were offered homes as long as they operated an indoor marijuana farm for a period of time. "We believe that there is a connection between Global Homes and Global Homes employees and these grow operations," said Deputy Chief Garry Wilson with the St. Lucie County Sheriff’s Office.

They may not have limited their "diversification" to marijuana growing:

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Hat tip to Austrian Economist, who sent us a link too good to just add to the sidebar.

Yesterday I posted on Roubini’s article discussing how the Federal Home Loan Bank (FHLB) has been bailing out Countrwide.  Countrwide isn’t the only "subprime lender" however [or perhaps I should say "subprime institutional borrower," as the odds of Countrwide and many other institutions meeting their obligations is remote] who’s bailout is likely to come at the expense of the American taxpayer:

For those who have been speculating on how the government might bail out participants in the collapsing US subprime mortgage market, an unlikely savior has stepped forward: the Federal Home Loan Banks (FHLB).

Compared to their limelight-hogging cousins — the Federal Reserve, Freddie Mac, and Fannie Mae — the FHL Banks don’t get much press. But from March to September, the amount of loans these banks have made to their 8,125 members has risen some $200 billion to stand at $822 billion, a whopping 32% jump in just six months.

This large increase in government-sponsored lending to financially troubled banks is unfortunate. It threatens to spread the consequences of poor choices made by lenders, regulators, and borrowers to all taxpayers, including those who made every effort to avoid the whole mess to begin with.

Here’s what’s happened with Countrywide:

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According to Economist Nouriel Roubini this morning:

The letter by Senator Schumer questioning  the $51.1 billion that Countrywide borrowed from the Federal Home Loan Bank system  (specifically the Federal Home Loan Bank of Atlanta) has finally revealed the little dirty secret  - that was known only to a few insiders and was noticed on this blog a month ago – that Countrywide, the largest US mortgage lender, has received a massive stealth public bailout that has put at severe risk taxpayers’ money. Here is Countrywide - the premier poster child financial institution of the reckless and predatory lending practices of the last few years – getting in severe financial trouble because of its rotten lending practice in subprime, near-prime and prime mortgages – and whose CEO Mozilo is under SEC investigation for potentially illegal activities – now receiving a massive $51.1 billion of public bailout money with little official supervision of such lending. Mozilo is under investigation for his accelerated sales of Countrywide stock under a 10b5-1 plan. Mozilo has made more than $100 million on stock sales this year, while Countrywide shares collapsed more than 50%.

As the Schumer letter correctly points out the collateral against this $51 billion loan is mostly toxic waste subprime garbage whose market value is now much lower than the face value of such mortgages; so $51 billion dollar of taxpayers’ money has been put at risk with garbage as collateral for it.

Roubini states that a different approach should have been taken with Countrywide:

The right approach would have been  to take over the bank and put it formally under public control.  Instead the US Treasury, the FHFB, the Fed and the banking regulators have been tacit and/or explicit accomplices of  the stealth public bailout of most egregious example of reckless and predatory lending, the core institution at the center of a subprime and mortgage disaster that is now taking the entire US economy into a recession.

I have to concur with Roubini’s conclusion:

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Jay Butler of ASU Realty studies is not exactly sounding like a bear, but more bearish than usual:

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The holiday season is on, but behind this year’s festive feeling is uncertainty about the housing market, the credit market, the economy, and more cautious consumers.

For those of us who figure the season is not about the money, we’ll keep a positive outlook while we look at the links, the ideas and the comments that Doomers have.

We always enjoy whatever you may bring us- and don’t forget to feed Igor his word- it keeps him happy and quiet down in the dungeon.

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