Housing Doom

I  remember a few years back poking around some half-finished homes where the builder had gone into bankruptcy.  The homes were located in Queen Creek, AZ. The homes were poorly constructed, and weren't being helped by being left out in the weather.  Flooring had been warped by the rain, the roof underlayment was faded by the sun and a number of critters had moved in.  When I walked in, a bunch of pigeons flew out.

About a year later, another builder bought the homes and finished them off.  The walls were filled with bird nests and droppings.  Some places were black and damp, but I'm pretty sure the workmen just drywalled over it all.  I've always hoped that no one with severe allergies bought those things.

M has found a property that brings the whole critter issue up to a whole new level however.  He sent me the listing for the property at 36452 N. 105th Pl., Scottsdale, AZ. [MLS# 4333227] Here's a picture of this 4,759 sq. ft. beauty:

The listing says:

REO, Sold AS-IS, Home is incomplete in the beginning of construction, great for picking your own floor plan and upgrades. Beautiful mountain views, gated community, club house, community pool.

The Realtor comments states however:

[Realtor Remarks:  Please see documents tab to submit an offer.  Lockbox code XXXX. Buyer to verify all facts and figures. BEWARE OF BOBCAT LIVING IN PROPERTY.] Read the rest of this entry »

Igor is sort of torn between the "markets can stay irrational" meme and the "Treasury keeping Shorty busy so he can't attack Spain" conspiracy theory.

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BL&BW (3/9): "AIG, Citigroup, Fannie Mae, Freddie Mac Shares Surge"

AIG jumped 13 percent to $32.77 at 4 p.m. in New York. Citigroup Inc. advanced 7.3 percent to $3.82 as Charles Gasparino of Fox Business Network said the U.S. may sell its stake in the bank within three months, without saying where he got the information. Fannie Mae climbed 5.9 percent to $1.07, and Freddie Mac increased 7.6 percent to $1.28.

The Buzz (CNN Money, 3/10): Bailout Rage? Citi, AIG, Fannie, Freddie Surging …

It seems more likely that investors, or shall I say traders, are making bets on rumors that so far have no basis in fact. There was scuttlebutt Tuesday, for example, that the SEC was going to ban or limit short selling in companies in which the government has a stake.

Igor's wondering why I'm not just watching the Oscars.

… but is this bubble humor or what?

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NYT: "Bloomberg Says a Soda Tax ‘Makes Sense’ "

As the battle over the state budget and the looming multibillion-dollar gap becomes more intense, Mayor Michael R. Bloomberg has stepped up his call for the Legislature to pass a penny-per-ounce tax on soda to stave off major service cuts to education and health care.

Heh, Mike — What about 1/10,000th of a cent applied to the HFT guys instead?

All I can say about this weekend is … thank heavens it's almost over:

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MediaIte: "HBO to Dramatize The Financial Meltdown In All Its Gory Details"

Like those who enjoy their car-chases, their full-frontal nudes, their dance-and-song ensembles, the strip of the populace tickled by the thought of Hank Paulson cringing over a toilet is now, evidently, sufficient to launch a movie.

A “whole range” of options is being considered for investors in the two government-seized companies, “from paying nothing to a haircut to whatever,” said Frank, whose committee oversees Fannie Mae and Freddie Mac. Congress will maintain the “status quo” and won’t make drastic changes to Fannie Mae and Freddie Mac until a new system for housing finance is in place, Frank said. – BL¹

Housing Doom is delighted to report that Barney is now on the job and the urgently required agencies undisambiguation project is now well underway.  Indeed Warren Gamaliel Harding himself could not have come up with a more compelling demonstration of utter cluelessness.  It's exactly what America needed to support its T-bill sales.

Here's more from WaPo.² Igor is already off to the House with Doom's bill for consulting services.  This was our original idea after all

The comments by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, come despite the assumption of many investors that investments in the two mortgage finance giants are risk-free. Until now, federal officials — who took over Fannie and Freddie two years ago to save them from collapse — have signaled to the market that lending the companies money is just about as safe as lending to the U.S. government itself.
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Fannie Mae and Freddie Mac use the proceeds of money raised from investors around the world to funnel cash to the housing market, providing a fresh supply of funds to make more home loans. [a one-way flow, it would seem; who knew?]

Of course the next step is for Acting FHooFAh Ed DeMarco to get up and contradict everything Barney just said, which will raise the level of doubt even further.

Holy confidence builder, Batman!  Timmy's gang reiterates support to the Enterprises, but take exquisite care to avoid mentioning their bonds.³

"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the statement from the Treasury said.

This story is moving really fast. Fellow blogger and Doom reader W.C. Varones sends additional info which pointed at this "clarification" in BI of all places by Barney himself. Note we're still talking support for the Companies not the Bonds.

Come on you people, someone get Ed back from lunch. If someone responsible doesn't balance Frank with a firm statement of support for the debt as opposed to the firms there's going to be total pandemonium in world bond markets inside another couple of hours.⁴

Margaret Kerins of RBS Securities said Frank's assessment that so-called agency debt is not fully backed by the government is incorrect. // "Regardless of the ultimate outcome for the GSEs, we expect all agency debt outstanding and issued under GSE status to remain related to the government. Reducing support is contrary to all of the actions takes by the administration and Treasury," Kerins said in a research note.

Great headline from Calculated Risk — lots of non-definitive statements happening …

"Frank: Fannie Freddie Investments not Risk Free, Treasury Clarifies"

So now Barney's retracting and non-retracting at the same time.⁵

House Financial Services Chairman Barney Frank on Friday said he agrees with the Obama administration's decision to fully back Fannie Mae and Freddie Mac bondholders to provide stability to the housing market and broader financial system.

At the same time, the powerful committee chairman said it would be a mistake to give Fannie and Freddie bondholders the same legal status as holder of US government debt by putting their obligations on the federal books.

Then FHooFAh Jim Lockhart did exactly the same thing (but with opposite polarity) on October 22, 2008 in clarifying away remarks that an explicit guarantee was in.  That time Ben Bernanke himself ended up looking silly explaining the resulting "effective" guarantee.  I wonder if the bond vigilantes are really going to swallow the same double-speak pabulum just a year and a half later.

I think this makes a nice summary …

CRisk commenter Rob Dawg: Treasury wants people to think there is a guarantee. Treasury needs to be able to claim there is no guarantee. Should either be tested; game over.

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Effective Jan. 1, 2010, Fannie Mae brought an additional $2.4 trillion of its guaranty book of business on to the balance sheet under SFAS 166/167. // Therefore, Fannie Mae expects to reflect approximately 18 million loans on its books compared with approximately two million loans as of Dec. 31, 2009. Management estimates that the cumulative effect of adopting FAS 166/167 will boost its net worth by $2 billion to $4 billion in its first-quarter 2010 results. – S&P¹

This story arc gets weirder every day.  So on Xmas eve Timmy lifts the cap on aid to the GSEs for the next three years.  One week later that's "eight maids a milking" in case you're keeping count , Fannie winds up all its QSPE trust funds.  Of the nominal nearly 2-and-a-half terabucks that lands on its balance sheet, about 0.083% of it is added to the Enterprise's net worth — which doubles it.

UPDATE (3/7): HuffyPo's got a fascinating article² which starts off a bit suspiciously with a couple of the talking points from the above, but then redeems itself with a comprehensive Cook's Tour of some key points of the crisis to now.

Stop! Hold the phone. What this statement indicates is that Fannie Mae, the largest mortgage company in the entire world, was holding eight times the amount of mortgages off-book than it had on-book.

And indeed I stand corrected, the title should have quoted 800 percent, not 900. (I must be a genuine mathematician to do something like that )

Must be comforting for the GSEs that the Treasury's got their backs on this one.  Obviously they're the world's worst offenders on this kind of exposure, but just about every large financial institution used these sorts of vehicles to juice risk up during The Great Moderation.  If everyone had pulled the 166/167 plug on New Years Day it's entirely possible that enough financial dominoes could have fallen over to have taken the whole private system with it due to the resulting counterparty chaos.

Funny how there's so little MSM chatter on consolidation …

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… [Bill Gross] continued that if core sovereigns such as the U.S., Germany, U.K., and Japan "absorb" more credit risk, then their credit spreads and yields should look more and more like the markets that they guarantee. – WSJ¹

The Treasury's strategy of postponing any substantive announcements concerning Fannie Mae and Freddie Mac until at least '11 combined with Congressional dithering on the future of US mortgage finance has failed utterly to generate an adequate level of confusion.  Markets are wringing unambiguity out of the continuing silence and now regard the top tiers of America's debt structure to be converging, so that an explicit guarantee on agencies is nearly a fait accompli.

Business Insider notes² that this month's Pimco letter is a milestone on this dangerous road to clarity.

What's happening, according to Mr. Gross, is that government bonds are starting to look just like corporate bonds, rather than existing on some privileged less-risky peer as in the past. …

Now more than ever, the legislative, executive, heck maybe even judicial branches need to get on the job and do something inscrutable.  Real Estate's new mantra? Obfuscate! Obfuscate! Obfuscate!

Doom recently posted on Rep. Frank delaying for another 3 weeks what would have been today's hearings on the future of the GSEs to take everyone on the road to MA for an urgently required investigation into commercial fishing.

Apparently we aren't the only ones who noticed …

Filming Of Congressional Reality Show Disrupts Committee Meeting

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Perhaps our best hope is to be found in the observation that most Americans still find something morally repugnant in strategic defaults, and in the evidence that our collective willingness to set aside our moral convictions may be held in check if enough people remember the Ten Commandments at the right moment and think: Thou shalt make thy mortgage payment. – Kevin Hassett¹

Click the pic to go to the Amazon & the following info (you can't make this stuff up):

3 new from $30.00 … 22 used from $0.95 … 1 collectible from $5.00
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AEI Senior Fellow Kevin Hassett's article¹ and it's tortured logic is a must-read.  All I've got to say is that the academic research community has some pretty weird ideas about this issue.  Fortunately Igor's got a secret survey that suggests 71.07 percent of underwater subprime and Alt-A borrowers also own the above 1999 classic which Hassett co-authored with retired US propaganda chief James K. Glassman so it's pretty unlikely they,² at least, would ever be able to get their heads around anything as complicated as "strategic default" to begin with

But that being said we really don't have to worry that there will be massive amounts of unforced jingle mail from private persons.  The moment the authorities suspect that such a trend is in the offing every feuding party within America's establishment will come together and squelch it faster than you can say "Federal Recourse Standards Act of 2010."

UPDATE (2/26): And if you think I'm just whistling Dixie here, check out this article⁴ that comes out of the American Enterprise Institute (indeed the charts it uses come right out of Sub VI Hotel, so perhaps I should scurry off to the dungeon and continue working on the thing )

Almost all Canadian mortgages are “full recourse” loans, meaning that the borrower remains fully responsible for the mortgage even in the case of foreclosure. If a bank in Canada forecloses on a home with negative equity, it can file a deficiency judgment against the borrower, which allows it to attach the borrower’s other assets and even take legal action to garnish the borrower’s future wages. In the United States, we have a mix of recourse and non-recourse laws that vary by state, but even in recourse states, the use of deficiency judgments to attach assets and garnish wages is infrequent. The full recourse feature of Canadian mortgages results in more responsible borrowing, fewer delinquencies, and significantly fewer foreclosures than in the United States.

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Wow, but it's getting tough out there. This⁵ just in from a MarketWatch RE agony column.

Q: … Where did I go wrong? I want to move on with my life but this property is not letting me to do so. [reader moved from MI to AR in '08, hasn't sold MI house] I have contacted a number of real estate professionals, attorneys and lenders for possible loss mitigation options. The options are uncharted waters for me and very scary with no clear definition of the consequences. I am in desperate need for your help and direction.
A:… As you suspect, though, the consequences are rather grave, whichever path you choose. Your credit record is going to take a severe hit, not to mention your psyche. So before you do anything, I suggest you speak with a certified housing counselor about your situation. …

… but on the other hand, Tyler noted⁶ today (hat tip twist) that the Administration is threatening to give the lenders no recourse whatsoever, not even allowing them to pull the plug.  Is there no middle ground?  John Ryskamp, I know you're out there somewhere.  Whatever you're doing, could you please just cut it out?

Yesterday it was announced that the government is taking the first step in a plan to virtually ban foreclosures – a step that can only be classified as capital markets suicide. …

The real problem comes when tens of millions of sheep wake up and realize that their moral convictions are being exploited by a financial elite that itself has none.³

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U.S. mortgage rates dropped for a second consecutive week, remaining below 5.0 percent, a key level that may boost home loan demand, a closely watched mortgage survey showed on Thursday. // The lowest mortgage rates in decades and high affordability helped the hard-hit housing market find some footing last year after a three-year slump. Attractive rates bode well for the housing market, … – Reuters¹

I suppose this present frantic optimism will continue, at least as long as the Administration keeps stimulating and the Fed continues with ZIRP.  But there's one thing I find a bit off about this bout of happy … I'm not seeing nearly as many silly little figures promoting those historically low rates on my screen as at the peak of the bubble.  So we ask — have other Doomers noticed this too?

This mortgage ad "re-mix" was uploaded to YouTube on 7/14 '07, a bit more than a half year into the subprime crisis, and half way between the Bear hedge funds blowing (6/20) and Coventree freezing (around 8/13, that is, the start of the credit crunch).

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… Last year, on Thanksgiving Day, Christmas Eve, Christmas Day, New Year's Eve, New Year's Day, Zero Hedge was spitting out stories like an unemployed, single, Canadian atheist. … – ZeroHedge¹

Looks like twist will just have to make due with a retired, 30+years-married presbyterian maritimer, but you get the idea

Doom isn't all we do up here, though.  Later today we're getting together for a concert,² heavy on the schmaltz for the occasion but sprinkled with a few spine-tinglers like the Mitchell / Jeffers SATB "I Have Had Singing,"  a choral arrangement (different from this one) of "Go, Lassie, Go." and the Michael Larkin arrangement of "He's Goin' Away," a beautiful Appalachian folk tune.

I found an excerpt of the '08 version of the concert (before I joined up — Alan Manchester anchoring the basses, that must have been cool), when Allen was still leading the group.  Doomer's may recall the haiku I posted late that year after he died overnight, as it happens just hours after a memorably upbeat rehearsal.

If you're near Halifax you shouldn't miss the opportunity, especially as Mrs. M managed to talk me through the making of a pretty decent plate of chocolate fudge that we're contributing for the refreshment time.  But try calling the number in the following details first before you go, this year's version was nearly sold out when I checked last.

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