Housing Doom

First it was the subprime loans that were causing problems for lenders.  They were followed by the alt A loans.  What is the latest problem child for lender is the formerly known as "insulated" prime jumbo loans: [Parenthetical comments are by author "Tradermark", not me.]

Rising defaults by affluent homeowners are raising the specter of another cloud over banks and investors, which could get stuck with thousands of expensive homes. About 6.9% of prime "jumbo" loans were at least 90 days delinquent in December, according to LPS Applied Analytics, a mortgage-data research firm. The rate was up sharply from 2.6% a year earlier. (hmm, I wonder what happens a year from now when unemployment rate is far higher and savings depleted?)

•Jumbo mortgages average about $750,000 and can run as high as $5 million or more. More borrowers with such loans are being hit by layoffs that are spreading through practically every sector and pay level of the U.S. economy.

•Defaults on jumbo mortgages tend to result in especially steep losses for lenders, because pricier homes are tough to sell in the current market. (just hold out for 2nd half 2009 when the recovery happens - should be easy to sell then)

•Last month, the mounting defaults prompted Moody’s Investors Service to downgrade hundreds of tranches of prime jumbo loans sold to investors as securities. Moody’s has downgraded more than 75% of all prime jumbo loans originated in 2006 and 2007 that carried the top rating of triple-A. (oh, Moody’s - where do I even start with these ratings agencies…)

•From 2002 to 2006, banks originated an average of $557 billion a year in jumbo loans, according to Inside Mortgage Finance, a trade publication.

So will problems with jumbos be as bad as subprime?  Some are saying it will be worse. Why?

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John put this find on the sidebar, but it was too wierd to not upgrade it to a post. 

In a world where concerns about moral hazard have gone the way of the Dodo bird, Freddie Mac has brought unconcern to new heights. [Or would that be lows?]

How’s this for unbelievable? So you didn’t make the payments on your property and are now in foreclosure.  They not only will allow you to live in it should you choose, you can rent it out to someone else if you don’t!

WASHINGTON (AP) — Mortgage finance company Freddie Mac said it will allow some borrowers to rent out their homes after losing them to foreclosure.

The goal of the new policy, announced Friday, is to prevent properties from becoming vacant so they won’t fall into disrepair.

Freddie Mac also said it will allow renters to remain in their homes even if their landlord enters foreclosure. The McLean, Va.-based company currently has about 8,500 properties in the foreclosure process, but many of those are vacant.

"Keeping foreclosed properties occupied and in better repair will support local property values and promote a faster recovery in the housing market," said Freddie Mac Chief Executive David Moffett.

Sibling company Fannie Mae announced similar plans for about 4,000 renters earlier this month.

Under Freddie Mac’s new policy, tenants and former property owners need to demonstrate that they have enough income to pay the rental bill. Freddie Mac also said it would consider reinstating a mortgage for those borrowers who can qualify for a modified loan.

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It’s Friday, and while things could be worse, it’s hard to tell that from the news.  Yesterday we saw the worst new home sales ever, the worst week for unemployment figures since 1967, and we heard that 2008 was the worst year ever for Ford.  Today we expect to hear that the GDP is the worst it’s been in 26 years. [Thanks L!]

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The Federal Reserve has alluded to stepping in and buying its own debt to prop up demand, supporting prices and keeping yields in line. [1]

“We’re seeing a bit of indigestion” [2]

Just before yesterday’s NY Fed H.4.1 numbers came out, we were contemplating the evening star and the lovely New Moon that had recently heralded the Chinese Year of the Ox. Well, East Asia’s party season has now ended, and the central bankers at countries like Japan and China are back to work. Looks like that new Ox may not have an infinite capacity for Treasury Debt. As is the case with the other traditional buyers of treasuries, the prospect of oversupply seems to be resulting in growing symptoms of indigestion among the cenbanks.

UPDATE: Over at the CFR, Brad Setser is offering additional insight,[6] including the following chart, with a pattern that should be all too familiar to Doomers:

This general loss of appetite at T-bill auctions seems to be provoking some funny behavior. Twist was kind enough to inform me yesterday (unfortunately I’ve never been on eBay or similar) that when you participate in an auction that’s selling your own stuff, it’s called shill bidding. I suppose that when you do it openly on a truly massive scale, it’s also called "innovative." I have experienced something like this before, however. For every serious computer programmer, there comes a moment when she discovers the wonders of tail recursion. There also comes a moment (about 10 minutes later) when she discovers it’s possible for an operating system to run out of virtual memory. I’m wondering if the evident peaking of the yellow line in twist’s update of Setser’s graph might also herald an instance of stack overflow.

UPDATE: Sorry for the mix-up, I originally specified the slightly different graph (below).  This graph is the raw cenbank holdings of treasuries and agencies with a window covering the previous 52 weeks.  You can see how the lines suggest the possible start of a convergence move, although not quite as dramatically as in the Setser graph.

This week’s Reuters report [3] records a trend-busting reversal. Foreign central bank Treasury Debt holdings were down a small but non-trivial $4.594 billion, a bigger selloff than has been seen in a long time. Meanwhile, cenbanks added a whopping $11.287 billion of agencies, perhaps reversing a trend of more than a half-year’s duration. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.[4] Here is Doom’s updated CSV version of the agencies and treasuries foreign central bank holdings data set.[5]

This week’s wild gyrations in the numbers resulted in a net $6.693 billion increase in cenbank holdings of US obligations. This is down nearly half from last week’s healthy level, and as mentioned in this space last week, cenbank appetite for this stuff is critical for Obama’s people to finance their bailouts at an affordable cost.

Divergence in the raw-numbers graph strongly reversed last week.

… and that caused twist’s ratio graphs to rebound. If this week’s result wasn’t some sort of anomaly caused by something like the effect of the big holiday in Asia, we could well be seeing the beginning of a whole new phase of the crisis.

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After many promises of "transparency", it’s clear that where taxpayer billions- I mean TRILLIONS- are going, is going to remain a secret.  Not just to taxpayers, but to Congress as well. Hat tip to Freedom’s Phoenix for this video:

Watch CBS Videos Online

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I thought this was funny…. [Hat tip to our admin!]

I recognize that when you pull video off of YouTube, you run the risk of posting something of dubious authenticity.  I did think however, if the poster’s claims in this case are correct, this is a case of an eviction running amok.I thought this was worth posting.

According to the poster of the video on YouTube:

Davidson County, North Carolina:  Local Davidson County politician and Sheriff David Grice was embarrassed and stood with foreclosure egg on his face after a botched attempt to serve what later proved to be an unlawful eviction. Grice, accompanied by 14 patrol cars, nearly 20 armed deputies, his SWAT team and a county commissioner, had their dangerous seizure thwarted after being convinced by phone that their actions were illegal and that the proof was available as a matter of public record at his own Register of Deeds office.

Here are videos #1 and #3: [I didn't bother posting video #2.  It's only a few seconds long and didn't give any new information.]

Whatever the relative merits of the case here, this appears to be very poorly managed. In a scenario like this, it would be easy for someone to be hurt. What seems to be needed here is better research, more common sense, and fewer guns.

Many thanks to T.M. for sending me the following article with the comment, "This is why it is taking such a long time for house prices to fall here in California."

This is the story of the divorce squabbles of Debbie Matenopoulos, host of E! and her estranged husband. They can’t seem to come to grips with a realistic selling price for their $4.3M home. People magazine is a bit of a change from my usual sources, but if John can quote Vanity Fair, I can use People. 

Debbie Matenopoulos’s estranged husband is seeking spousal support from the E! host, saying she "pays for nothing" related to their multimillion-dollar Los Angeles home after the pair "continuously lived beyond our means," court documents show.

Jay Faires, 45, an L.A. music executive who makes $37,500 per month before taxes, is demanding that Matenopoulos, 33, either help pay the mortgage, agree to refinance, or move out and sell the home, according to his filing.

"Notwithstanding the fact that [Matenopoulos] earns at least $225,000 annually, she had her lawyers send my lawyer the cable bill and her cell phone bill to pay," Faires says. "If [she] wants to continue to live [in our home] and won’t agree to sell, she should be paying all expenses associated with her use and occupancy, i.e. the mortgages, property taxes, utilities, insurance, gardener, pool, alarm, etc."

Faires, who filed for divorce on Nov. 12 after five years of marriage, admits that the couple have "continuously lived beyond our means during our marriage."

He says he has moved out of the residence, and that Matenopoulos "has changed the locks and the alarm code so I can’t enter the house." Faires says they owe approximately $1.5 million on the home, which carries a monthly payment of $11,671.

He adds that he’s had the property appraised recently at $4.3 million, but alleges Matenopoulos "won’t even consider selling [the home] unless we receive somewhere in the neighborhood of $8 million."

"[She] apparently believes that at some point in time [the home's] value will increase by some $3.5 million," Faires says. "She also apparently believes that I … pay all expenses … while she lives there and pays for nothing, and waits for a real estate miracle to happen."

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Another Arizona builder, Fulton Homes has filed for bankruptcy protection:  [Thanks L!]

Fulton Homes sought legal protection from its creditors Tuesday by filing for Chapter 11 bankruptcy reorganization.

The Tempe-based company is among Arizona’s largest home builders.

It was founded by Ira Fulton, a prominent community figure and one of the state’s best-known philanthropists. The engineering college at Arizona State University bears Fulton’s name.

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The Case-Shiller Housing Index Report has been released for November. Like the rest of the economic news out there, it’s not pretty:  [Thanks L!]

The Standard & Poor’s/Case-Shiller 20-city housing index released Tuesday tumbled by a record 18.2 percent from November 2007, the largest decline since its inception in 2000. The 10-city index dropped 19.1 percent, tied with October for the biggest drop in its 21-year history.

Both indices have recorded year-over-year declines for 23 straight months. Prices are at levels not seen since February 2004.

Prices in the 20-city index have plummeted 25.1 percent from their peak in July 2006.

Here’s what this drop looks like in terms of values: [Both charts are for the 20-city index.]

And in terms of the year-over-year price drop:

How much can we rely on the accuracy of the Case-Shiller numbers?  Mish quoted his friend "TC" who gave a good explanation of one issue last month:

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