Housing Doom

Igor regrets to inform Doomers that the Versus Gang is Back

.

.

.

The above homepage link will provide better quality than the following embed for many viewers.

.

According to Forbes magazine, Phoenix is the second best metro area in the United States to buy a home.  They used a formula based on sales activity to come to that conclusion.

One would think however, that a good housing market would be one with the least possible downside risk and the greatest upside potential.  While individual homes and areas may be holding their value better than others, the Phoenix area in general remains a risky place to purchase a home. Even former permabull Jay Butler, director of Realty Studies at ASU admits the risk:

There is increasing hope that the housing troubles are beginning to ebb, and the bottom, along with a potential recovery, are  in sight. However, many problems continue to exist that could hinder the timing of any recovery. The impact of foreclosures on the market has been the primary concern of the last year and will continue to be in the coming months, especially with the end of many hiatus programs and the weak job market.

It is fair to say that the huge number of foreclosures are the worst threat to the stability of the housing market in Phoenix, and the situation is deteriorating: [Hat tip Freedom's Phoenix!]

Read the rest of this entry »

President Obama’s got a new plan to fix the mortgage industry, and boy is this one hard hitting:

If the Obama plan for simplifying the mortgage process is approved, here’s how it might work:

The government would give its seal of approval to a handful of mortgage types — a standard 30-year fixed-rate mortgage and perhaps a few varieties of adjustable-rate loans. For a loan to get the "vanilla" label, the lender would have to verify borrowers’ income and have them set aside money for property tax and insurance.

Borrowers would still be able to get mortgages that don’t pass the government’s vanilla test. But they would be warned about the risks.

WARNED about risks.  That should put a stop to the insanity, shouldn’t it?  You could still throw caution to the winds and get a "risky" loan though:

[C]onsumers who take out mortgages would automatically get a "plain vanilla" loan — such as a traditional 30-year fixed-rate mortgage — unless they opted for a riskier variety.

I wonder why the vanilla loan is "automatic"?    Does the administration assume that the foolish or uneducated wouldn’t bother asking about other types if plain vanilla choices are "automatic"? 

I can almost see myself seated in front of an L.O. [Loan officer] now…

L.O.:  Good morning, Ms. Twist.  Have a seat.  What can I help you with today?

Twist:  I’d like to apply for a mortgage loan.

L.O.: [Stunned silence]

Twist:  Please pick your jaw up off of the desk- that expression doesn’t become you.  I always said I was going to get around to this eventually.

L.O.: Does this mean that hell has…?

Twist:  No, it doesn’t.  Come on, I’m trying to make a point here.

L.O.:  Right. [Reaching for a stack of forms.] Sorry.  Let’s just start filling out these forms.  Full name please?

Twist: Aren’t you going to discuss my mortgage options with me first?

L.O.:  Don’t be silly.  If I do that, the next thing you know, you’ll demand a zero down, neg am loan.  I’d probably give it to you, you’ll default within 12 months and insist that you were the victim of predatory lending.  When that happens, I lose this job and the next thing you know, I’m asking my customers if they want fries with their purchase.  No thank you.  We’ll just stick with the certified, grade A plain vanilla mortgage, shall we?  Like I said before, full name please?

Twist:  Could you define a plain vanilla mortgage for me?

L.O.:  A traditional 30-year fixed-rate mortgage.

Twist: Well what if I want….

L.O.:  I thought we just went over this!

Twist: A 15-year fixed-rate mortgage?

L.O.:  Oh, [Chuckles.] you were just messing with my head, weren’t you?  That’s plain vanilla enough.  You had me worried for a minute. Let’s get back to the form…

Twist: What if I want to put down 10%? 20%? Zero?

L.O.:  We can fill that in automatically.  It keeps you from making a poor decision.

Twist:  What if I WANT to make my own decisions?

L.O.:  Did I explain to you how much I really dislike fries?  I couldn’t handle the smell.  Please…

Twist: What if I want an adjustable rate loan?

L.O.:  What variety?

Twist: What do you mean, "What variety?"  Garden variety, I guess.

L.O.:  You had to go and do that, didn’t you?  Now before we proceed, you’re going to have to watch THE VIDEO.

Twist:  THE video?  What video? Why do I have to watch a video?

L.O.:  The law clearly mandates that anyone who wants a non-vanilla mortgage be shown Practicing Safe Mortgage Borrowing- Avoiding Risky Flavored Mortgages.  A garden variety adjustable rate mortgage is considered "risky".

Twist:  I didn’t say I wanted an A.R.M.  I just said, "What if?"

L.O.:  There’s no use you trying to impress me with the fact you know the acronym now.  You brought it up, so you need to watch the video.

Twist:  What if I refuse?

L.O.:  I’m sorry, but I’m afraid I’m going to have to insist.  It’s your own fault you know.  You could have just gone with the certified grade A plain vanilla mortgage, but no, you had to go and start asking questions.  You know, it was people like you back in 2006 who messed up the housing market for the rest of us in the first place!

Read the rest of this entry »

… And the only point I’d make is that in Europe, you’ve got banks in Europe have loans, something like $1.5 trillion to Eastern Europe. If you don’t solve that problem, you’re just going to have another subprime sort of problem in the global banking system, which is going to be the implosion of East Europe. … - Desmond Lachman

Housing Doom is pleased to present the seventh and final installment of our unauthorized annotated transcript of the American Enterprise Institute’s March 17, 2009 seminar "The Deflating Bubble, Part V: Forecast and Policy Recommendations for the Next Six Months." [1] This is the Q&A session. The event site has several resources, including both an audio and a video recording of the 2 hour proceedings. There is a brief summary, but as yet no official transcript.

back to AEI Subprime V transcript links

PREVIOUS: Panel Discussion

Alex Pollock [1:26:56]: … May I remind you you need to wait for the microphone. Tell us your name and affiliation please, and then ask your question. And we’ll go first to Bert, because the … look at this, the … Karen is right there with the microphone.

Bert Ely: Because she knew I’d ask the first question. Bert Ely, Banking consultant.

This a question, I guess for the entire panel, maybe primarily for Chris and John. We talk about dealing with big institutions, shutting them down. But these are huge complex financial institutions — 10s of thousands, several 100s of thousand employees, … [mic off, several seconds of dead air] … FDIC is ….

Chris Whalen: … going back to my …

Bert Ely: … if I could just add — in doing so without committing economic arson. I mean I realize that we kind of just … shut this thing down …

Chris Whalen: I know … you’re making Larry’s [refers Obama advisor Larry Summers?] …

Alex Pollock: Let — this long question be finished, and then we’ll get your answer.

Bert Ely: … but doing it in a way that minimizes damage to the economy and to the taxpayer.

Chris Whalen: Bert, look. Imagine if criminals, unbeknownst to you, secretly hired a dirty lawyer to put a lien on your house. And then a whole bunch of other people came, and they put a lien on your house, too. So one morning you wake up, and there are 10 collateral liens on your house that have been registered and validated by the court, and they say, "Oh, Bert, you can’t blow these things up, you do that and the whole community’s going to collapse. I’m sorry, you’ve just got to subsidize this."

That’s what the over-the-counter derivatives community is saying to the rest of us. "Oh me, oh my! You can’t do this, you can’t pull the plug. Bad things are going to happen." Well I put it the other way. If we don’t put AIG into receivership and pull the plug on the credit default swaps market for good, which is exactly what that means, then we are in big trouble.

We don’t go back if we make this decision.

Alex Pollock: You don’t mean pull the plug as a metaphor, you mean retrade these contracts.

Chris Whalen: … I mean …

Alex Pollock: … give people a haircut on contracts! …

Chris Whalen: … I mean give it to the Trustee in the Southern District of New York …

Alex Pollock: … and that’s what happens …

Chris Whalen: … and just like Lehman Brothers, exactly. The Lehman liquidation is your model.

Read the rest of this entry »

… Because, what scares me is, the Chinese are indicating that they’re not too comfortable with the trillion dollars in US Treasuries that they’ve already got, and what I’m scared about is, when I see the CDS’s on US treasuries going — trading now at close to 100 basis points. The implied probability of the US government defaulting according to the market is now 10 percent. I think that that’s a scary proposition. - Desmond Lachman

Housing Doom is pleased to present the sixth installment of our unauthorized annotated transcript of the American Enterprise Institute’s March 17, 2009 seminar "The Deflating Bubble, Part V: Forecast and Policy Recommendations for the Next Six Months." [1] This is the discussion by the panelists that followed the presentations and preceded the Q&A session. The event site has several resources, including both an audio and a video recording of the 2 hour proceedings. There is a brief summary, but as yet no official transcript.

back to AEI Subprime V transcript links

PREVIOUS: Makin Presentation

Alex Pollock [1:15:15]: I want to do 2 things. I want to talk about the — before we let the panel jump in some more — I want to talk about the pronoun "who?", and then I want to tell an Irish joke.

The several things in this panel came up with … question of management. And you know — when we talk about policy, we love to talk about institutions and policies, and formulas, and what are inaccurately called mechanisms, when it comes to markets, which of course are really organic behavior –

But we don’t talk enough about the question of "who?". Everybody who is an actual manager knows that more important than the organization chart, although it’s important, is who you have in charge of various functions, and this brings me to one of my favorite characters in financial history, who is Jesse Jones.

Jesse Jones ran the Reconstruction Finance Corporation during the 1930s, which was the bank, and other things — bailout, government corporation of its day. Reconstruction Finance Corporation made investments in more than 6,000 banks during that crisis, which was about 40 percent of all the banks there were. Who was Jesse Jones? Well, he wasn’t even a High School drop-out. Because he never got to High School. He quit school in the 8th Grade to take over one of his father’s cotton farms. He was a self-made man, a very successful entrepeneur, both in politics and business. He was very experienced … getting on towards 60 when he took over the Reconstruction Finance Corporation. He was a tough minded, tough, very financially savvy guy.

And I think it’s generally considered, he did quite a good job, and was highly trusted. So the question I’ve been putting to people is: "where is our current version of Jesse Jones, to run these bailout operations?"

Read the rest of this entry »

It’s Friday, and a big hat tip to John for this very funny article from Reuters:

PARIS, May 14 - The U.S. government’s recent bank stress tests were all about clarity. With hard data and clear facts, they shone a bright light on the shadowy uncertainties of complex financial transactions.

The question now is: Will this sort of clarity be a part of doing business in the financial industry?

Bank regulators in the European Union should look at the U.S. example and make results of their upcoming stress tests of European banks transparent to the public.

Currently, they intend to inform only the EU finance ministers and executive agencies.

U.S. Treasury Secretary Timothy Geithner hit it on the head when he said last week, "There is a reassurance in clarity."

Geithner is right, there is reassurance in clarity.  It’s too bad that the stress tests provided the clarity of a solar eclipse.

Read the rest of this entry »

I got a kick out of this "Zombie Bank" video: [Hat tip Freedoms Phoenix!]

Read the rest of this entry »

Ontario’s Civil Remedies Act, however, does not require a criminal conviction, so the province moved in and seized the goods after receiving judicial approval. A judge can give permission based on a balance of probabilities that the goods were proceeds of crime, a standard that is not as high as the criminal test of proof beyond a reasonable doubt. [1]

There is a certain dignity involved in massive corruption like that suggested in Doom’s previous post.  After all, economic crime that surpasses High Treason by orders of magnitude is the customary way great civilizations rot from the inside.  Why should today be different?  It’s not like someone at Yale is going to get to register a trademark on "Absolute Power Corrupts Absolutely."

By contrast, the Ladies’ Auxiliary of Pax Americana is descending into farce.  For some unfathomable reason, my country’s highest court has seen fit [1] to institutionalize a Tijuana-style narcs-robbing-pushers method for keeping the ol’ coffee fund topped up.  Open to abuse or what?

UPDATE: (hat tip to Freedom’s Phoenix via twist): this Sun columnist has added some serious concern to the mix.[3]

To the surprise of at least one legal expert, the Supreme Court of Canada last week unanimously gave the provinces incredible powers to seize assets allegedly connected to crime.

For a country that has gained the reputation, whether deserved or not, of protecting the rights of the accused over the rights of victims, it’s quite an about-face.

My local rag, bless their hearts, accidentally reported the truth on this issue earlier today.  The title for this blog post is the actual unretouched print edition headline for this followup story [2] as we read it on page A10 at breakfast.  Note that the online editor realized how badly the print editor had let the cat out of the bag and "fixed" one critical word.  Priceless.

Read the rest of this entry »

M just sent me this one.  I’m having a tough time typing and laughing at the same time: [My apologies if this doesn't fit your monitor, I couldn't really shrink it and have decent resolution.]

Read the rest of this entry »

Housing Doom is pleased to present the first installment of our unauthorized annotated transcript of the American Enterprise Institute’s March 17, 2009 seminar "The Deflating Bubble, Part V: Forecast and Policy Recommendations for the Next Six Months." [5] This is the introduction by session moderator Alex Pollock. The event site has several resources, including both an audio and a video recording of the 2 hour proceedings. There is a brief summary, but as yet no official transcript.

Highlights

• "The red line on there is a simple extrapolation of the trend from the beginning of series through 2000. And in that sort of an approximation, you can see we’ve already had a huge adjustment, as we know. And this index is almost back to where it’s extrapolated trend line would be. …"
• "… And the price incentives do work. For first time home buyers of course it’s great. And there have been increases in house sales at these lower prices. We need to get them low enough to have a meaningful speculative interest come into the market to absorb the available inventory, and we’ll see when that happens."
• "The liquor being thrown around is of course the analog to the bailout money … [laughter] and if we splash enough bailout money around, over the corpse, maybe it will sit up."

back to AEI Subprime V transcript links

Alex Pollock: [00:00] Welcome ladies and gentlemen to our conference on the deflating bubble part V.[1] [2] [3] [4] [5] The subtitle "Forecast and Policy Recommendations for the Next 6 Months."

We have an outstanding panel that I’m sure you will find most interesting to listen to. But before that I want to wish you all a happy Saint Patrick’s Day, and it’s being Saint Patrick’s Day, we’re going to start with some Irish music.

Read the rest of this entry »