Housing Doom

The MSM keeps spreading the message that in spite of the fact that billions have been provided to banks, they are not making loans. Here's one of the reasons why: [Hat tip Economic Populist!]

Key pieces of this puzzle are presently coming thick and fast from US government sources, the MSM and various parts of the blogosphere.  The fuzzy outlines of a picture are even beginning to emerge, but these appear at first glance to be much weirder than anything our conspiracy-soaked imaginations had previously envisioned, so it may take a while to get used to it.

Just in the last couple of days it's become possible to think about the Second District as a self-governing sovereign entity.  The approximate model would be a high Renaissance  Italian mercantile city state like Florence.  Indeed it's even possible that if, as Susan Bies proposed around 2005, the US Congress were to put the Fed Board in charge of the great Wall Street banks, it would profoundly alter the state of the financial (and real) world.

NY Fed Implicated in the Accounting Fraud at Lehman

by Jesse

Quite a bombshell from Yves Smith of Naked Capitalism tonight. [this was posted late Thursday evening - JM]

I wonder if the US mainstream media will ignore and dismiss it as they did the exclusion of the Wall Street banks from European debt sales in response to their fraudulent CDO sales. Is there a 'reverse gear' on the Voice of America?

In response, let's see if Chris Dodd puts the Consumer Protection section of the financial reform legislation under the control of a private organization,the Fed, which is owned by the institutions it is supposed to be regulating, and which is now implicated in the failure and fraud that helped to trigger the recent financial crisis.

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The Fed's own MBS holdings advanced $2.344 billion last week, basically treading water, and total holdings of US obligations by foreign central banks showed modest positive growth. The numbers are still teasingly close to a breakout.

This week's rather comforting 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 flatlines are creeping ever closer to the limits of Flatland. The combined holdings are now $20.615 billion above the benchmark Dec 16th '09 figure, with most of that accounted for by a rise in Treasury Debt (the agencies number presently lies almost exactly $2 billion under the standard).

Treasury Debt holdings are up for a sixth straight week, but the $3.326 buy was less than half of last week's

Agencies rose $2.059 billion, almost matching last week's figure. Its stability over the last half year has bordered on the comic; its net move over the last 25 weeks is now a bit less than $1 billion.

*Agen-FM: continuing thanks go to Chris Puplava whose version of the Fed MBS holdings graph led me to conclude that those holdings may be masking a more marked drop in cenbank agencies holdings than the official dataset was admitting to.  Indeed, reducing the agencies number by the amount of the Fed's MBS holdings seems to give a more plausible narrative through the first part of '09 than the red line does.

This week the total US obligations number rose by $5.385 billion. While that's the forth sound positive result in a row, it's only slightly more than half last week's value.

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Hat tip to DollarCollapse for the link to the EconomicRot.

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embed from "Elizabeth Warren (with Charlie Rose) on Commercial Real Estate"

This would make a really great companion piece to the Bill Maloni article we re-posted Wednesday night, but alas we can only give you a taste of this comprehensive analysis.  Doomers would be wise to head for the Washington Post (click on the title) and read the whole thing.

You can enjoy WaPo's ads over there, too

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WaPo: "Politics, shaky economy create no rush to restructure Fannie and Freddie"

"Any suggestion now about future changes could destabilize the market," said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. "The U.S. mortgage market is so fragile that all Treasury needs to say is 'boo' and it could fall apart."

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.

Bank of America has done it again.  They have foreclosed on a homeowner that wasn't in default- and this time they kidnapped the parrot:

A Hampton woman is suing Bank of America, saying one of its contractors wrongly repossessed her home, padlocked the doors, shut off the utilities, damaged the furniture and confiscated a pet parrot, though her mortgage payments were on time.

Angela M. Iannelli, 46, suffered "severe emotional distress, embarrassment and ridicule" as a result of the company's "de facto foreclosure process and seizure proceedings," attorney Michael Rosenzweig wrote in the suit, filed Monday in Allegheny County Common Pleas Court.

The suit accuses Bank of America and its contractor, Ebensburg-based Snyder Property Services, of trespass, unfair business practices, defamation, libel and other offenses during the October foreclosure of Ms. Iannelli's home in the 5000 block of Fountainwood Drive. She is seeking an unspecified amount in compensatory and punitive damages.

Bank of America instructed Snyder Property Services to "enter, seize, padlock, 'winterize' and take possession" of Ms. Iannelli's house, the lawsuit said, cutting water lines and electrical wiring, pouring anti-freeze down her drains and "stealing" her pet parrot, Luke.

She returned home to find her locks had been changed, her furniture and carpets had been damaged, her belongings had been scattered and the bird missing. A notice on her door told her to contact Bank of America, which "initially falsely denied responsibility or knowledge of the invasion and refused" to help her, the suit said. The bank also acknowledged they knew the parrot's whereabouts, it said.

In further calls, Bank of America representatives told Ms. Iannelli they couldn't help her, told her to stop calling, said they were "tired of hearing from her" and put her on hold, told her to call back later and hung up on her, the suit said.

About a week later, Bank of America told her it had "made a mistake" and told her where she could find her parrot, but said she would have to travel to Ebensburg to retrieve it.

She eventually drove to Ebensburg to get her parrot back.

Mr. Rosenzweig said that, with the exception of one payment, Ms. Iannelli's mortgage payments had been on time. Bank of America had not sent her a notice of a 60-day deficiency nor given her 30 days to fix it, as state law requires, he said.

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So what happens when government steps in to revitalize neighborhoods and make more people homeowners? Sometimes neighborhoods are hurt and homeowners go into foreclosure. Example number one is from Buffalo, NY where the city decided to subsidize new homes:

"Foreclosures weakened the effort, but overall, not all the housing that was put up was well thought out," said Michael K. Clarke, head of the Buffalo office for Local Initiatives Support Corp., a nonprofit agency that promotes community development. "There was insufficient coordination with the need for rental housing, and not enough emphasis on target areas that might demonstrate a more stable return. You can't sell new homes next to vacant ones, or sell houses to people who only qualify for financing by the skin of their teeth, and expect to have much success."

 

"We played musical houses with the housing in Buffalo," added Joseph E. Ryan, the former strategic planning director under former Mayor Anthony M. Masiello. "We have more houses than we need. People are coming from existing neighborhoods. It's not like they've been coming from out of town. It helps to destabilize neighborhoods."

It's not only communities that are hurt, but the taxpayers that end up paying for these mistakes: [Thanks John!]

Home ownership in the United States ranks up there with motherhood and apple pie. The government has championed it for decades through tax breaks, mortgage guarantees and, most recently, the herculean task of keeping Americans in their homes after the housing market collapse. But government subsidies of the American Dream also have a darker side: when things head south, taxpayers end up stuck with the costs.

The government-run mortgage finance agencies Fannie Mae and Freddie Mac owned more than 131,000 properties between them at the end of 2009, according to recent annual filings. That’s roughly the equivalent of San Francisco’s owner-occupied housing stock. The two companies sold off nearly 200,000 units last year that they took over after owners defaulted. But despite those efforts, Fannie and Freddie owned substantially more units at the end of 2009 than they did a year earlier.

And things are set to get worse. Barclays Capital estimates the pipeline of severely troubled loans at around five million across the United States. Modification programs, which should help some borrowers stay in their homes, have also delayed the inevitable forfeiture of many others.

Fannie and Freddie end up owning properties because they provided guarantees for the benefit of mortgage investors. Between them, they back around $5 trillion of American home loans. Such support — once implicitly and now explicitly backstopped by the Treasury — has handed borrowers relatively low financing costs for years.

Now, though, the result is that aside from the huge financial burden they place on taxpayers, the two companies have been amassing foreclosed properties and, in a few cases, have become landlords.

But the Treasury wants to intervene in the effects of all this intervention:

Today we are providing a program update, including additional details on Foreclosure Alternatives and Home Price Decline Protection Incentives. Foreclosure Alternatives will help to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu of foreclosure in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. This program will assist homeowners who cannot afford to stay in their homes by helping them to avoid foreclosure and relocate to a home they can afford. Building on insights developed by the FDIC, Home Price Decline Protection Incentives will provide additional payments based on recent home price declines, and therefore will incentivize additional modifications in areas where home prices have been falling. By increasing MHA modifications and the use of alternatives to foreclosure, we will reduce the negative impact of foreclosure, minimizing damaging costs for financial institutions, borrowers and communities.

This is to be accomplished by: Read the rest of this entry »

March 9 (Bloomberg) — The Regional Bond Dealers Association asked the Financial Industry Regulatory Authority and Federal Reserve to end reporting of so-called agency debt trades until bank-affiliated brokers also must comply, saying some are seeking to avoid disclosures. – BL&BW¹

I don't think anything straightforward has happened on this story arc in almost two years.  The GSEs themselves have been quasi-nationalized.  Their debt now enjoys a  semi-explicit guarantee, so that when the Chairman of the House Banking Committee suggests that bondholders may have to take a haircut anyway spreads tighten to a multi-year record, which is just a bit counter-intuitive.

Meanwhile Treasury apparently can't legally offer support to the debt, but what they can do is offer the Enterprises unlimited support to some classes of their equity until the end of '12, which is conveniently after the next presidential election so their next move won't have to take into account, like voters … but heck, it's a totally risk free strategy.  Why? Because they won't have to actually do anything more until 10 days after the world ends on Dec 21st

But closer to home, the Fed's MBS purchase program is scheduled at the end of this month.  Now that sounds simple enough, right? Think again …

Reuters: "Fed to linger in agency MBS market after exit"

LATER: the cat said, "I never get involved in politics," and it's easy to see why. Hat tip to Implode-O-Land for this 3/9 MW-hosted press release from Judicial Watch:

"Obama Administration Tells Court Government-Run Fannie Mae and Freddie Mac Not Subject to Open Records FOIA Law"

"Apparently, American taxpayers are paying the tab for the collapse of Fannie and Freddie, but are not allowed to ask any questions about why it happened. When it comes to Fannie and Freddie, the Obama administration is saying, in effect, 'None of your business,'" said Judicial Watch President Tom Fitton. "Obama administration officials and their lawyers can argue until they are blue in the face that Fannie and Freddie are not federal agencies, but their reasoning is straight out of Alice in Wonderland. [hmmm... Igor thinks he's starting to see a trend here] There is nothing ambiguous about the government's absolute control of Fannie and Freddie. Which raises the question: What does the Obama administration have to hide?"

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Fresh out of the oven …

Doom friend (and occasional antagonist) Bill is always worth a look, especially when he speaks to the GSEs and politics.  This is right in his wheelhouse.

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"Barney?"

by Bill Maloni

What is Barney Frank (D-Mass) thinking?

I’m sure I’m not the first person to wonder what, beyond his legendary intelligence and quick wittedness, causes the cerebral and sometime volatile Chairman of the House Banking Committee to stake out the policy positions he takes.

Recently, as the world now knows, Frank called for “abolishing” Fannie Mae and Freddie Mac. He soon will initiate congressional hearings to produce that desired legislative result.

The fact that the Obama Administration hasn’t reached the same fever pitched conclusion as Barney likely means that this atomization will not occur in an already volatile political year. Since moving forward in this regard—with no idea what to employ as a mortgage finance system replacement–is fraught with huge political and systemic mortgage business risk for the Democrats and the mortgage industry.

Last week, Barney’s took it upon himself to lob another grenade at the former GSEs and reminded investors that Fannie/Freddie debt and MBS securities were not the equal to Treasuries and that those who bought company securities could end up getting a financial “haircut,” or less money than they expected when they bought the bonds.

While legally and technically correct, what Barney said flies in the face of what the Treasury sales campaign to assure markets, i.e. that the former GSEs debt and securities are safe and the Treasury does stand with them, since the United States mortgage market—which right now is standing on Fannie’s and Freddie’s shoulders—relies on the two companies largely unfettered access to credit market.

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