More on our (most) recent housing woes

From the Cato Institute
:

House prices were always going to find their “true” bottom. The question was simply: did we want to get there right away, or drag out the process? Washington chose the course of dragging out the process, at considerable cost. I believe dragging out the process has only further spooked potential buyers. Any buyer today has to suspect that further price declines are possible. We need to get to the point where the only direction is up. We aren’t there yet. Policymakers continue to ignore the basics of supply and demand. Unfortunately the rest of us pay the price for their doing so.

Yep


We'll all be hearing a lot over the next 17-18 months or so regarding the bold and daring steps the administration took to rescue the economy through gimmickry such as the GM and Chrysler bailouts and home-owners assistance programs and how it was the politically-unpopular thing to do. Nonsense. What's so bold and daring about spending tax-payer money?

As the housing market is proving, sometimes the bold and daring thing to do is to do absolutely nothing. And many times doing absolutley nothing is indeed politically-unpopular but totally necessary.

Groundhog Day: June 5

Good lord, here we go again.

Yet another news item that could've been written at any time during the past 2 or 3 years.

The Obama administration wants to help more struggling Americans stay in their homes by reducing the amount they owe on their troubled mortgages, a top Treasury official said Saturday.

"We are very definitely trying to facilitate more principal reductions," said Timothy Massad, Treasury's acting assistant secretary for financial stability. "It is a very important piece of the overall solution," he said.

The administration is trying through taxpayer-funded programs to prevent homeowners from losing their homes. Nearly $50 billion has been set aside from the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP, to help distressed homeowners.

Persistently high unemployment and a weak housing market pose a threat to President Obama's re-election prospects next year.

So far, one of the programs has helped some 670,000 distressed homeowners win lower mortgage payments. But that has done very little to help the overall housing market, which remains depressed even as other parts of the economy have started to recover.

(ed. note: And these parts would be..?)


A glut of houses for sale, foreclosures, tight credit and little demand have impeded the housing recovery. Recent data showed that home prices dropped below the low seen in April 2009 during the financial crisis.

(italics, ours)


It has yet to dawn upon the economic illiterates of this administration that all they are doing is prolonging the agony of this recession. To no avail. And the best part is that they are using your tax-dollars to do it. That's right: a pending double-dip recession paid for with your money.

One housing counselor expressed frustration with the servicers, saying more people would still be in their homes if their principal was reduced.

"Servicers are not required to do it," said Shaneece Hudson, a mortgage adviser with the National Community Reinvestment Coalition. "Principal reduction is an option (for the servicers.) But they don't do it. They will do everything else first," she said.

Crazy, we know, that servicers would not want to lose money in a voluntarily-entered contract with the home-buyer.

"There is no silver bullet. But I think there are a lot of programs out there that are providing help to people," said Massad. "If anyone has specific ideas that haven't been tried, I am happy to hear about them."

How about doing nothing? Really. Quit pouring billions of dollars into a zombified housing market so a true recovery can start taking place.


If the definition of insanity is doing the same thing over and over and getting the same results then check out why B-Daddy thinks the President ought to get his money back from Harvard and Columbia.

Not as bad as you think

(This is a re-publish of a post that was up briefly on Thursday before Blogger which hosts this site up and deleted it.)





Boy... you do someone a solid and this is the thanks you get.



Though the following might not meet the standard definition of "good" news, it may indeed be "necessary" news.

New data just out from Zillow, the real-estate information company, show house prices are falling at their fastest rate since the Lehman collapse.

Average home prices are down 8% from a year ago, 3% over the quarter, and are falling at about 1% every month, according to Zillow.

And the percentage of homeowners in negative-equity positions — with a home worth less than its mortgage — has rocketed to 28%, a new crisis high.

Zillow now predicts prices will fall about 8% this year and says it no longer expects the market to bottom before 2012.

“There’s no way we can get to flat, from these depreciation levels, in the last nine months of the year,” says Zillow economist Stan Humphries. “Demand is a lot more anemic than we had previously thought.”

In our humble opinion, what we're seeing is housing prices following a trajectory that was temporarily forestalled by the Obama administration's attempts to prop up the market via Keynesian gimmickry. Instead of allowing the market to weed out the bad actors and to squeeze out the poisons in the system, programs like HAMP only delayed the inevitable and thusly delayed any true recovery as the market was never able to find the bottom.

As it is, the graph below suggests that housing prices are still above a historical trend line in the market.

Of course, the powers that be will not see the situation as such so expect another fresh round of programs to band-aid over and artificially prop-up a market that is trying to find the bottom.

As we have said many times before, the statist solution for previously-failed statist policies is simply more statism.

Tales from Bailout Nation: the apocalypse edition

“Our jaws are literally dropping as we’re reading this,...every one of these transactions is outrageous.”

So, what would you say to a TARP-receiving Wall St. exec making $800,000 accepting zero dollars in the way of bonuses? You might look at that salary and think that was mighty big of that guy but that you were greatly appreciative just the same of that symbolic gesture considering all the other shenanigans going on with Wall St. bonuses.

Then what would you think if ol' boy in 2009 purchased a 107-year-old limestone carriage house on the upper east side of New York for $13.5 million? You might say that perhaps this guy had some spare change setting between the seat cushions in order to make this purchase. No biggie.

But then what if we told you that instead of his own money, he possibly used that of his wife who along with her girlfriend received $220 million from the Feds for their start-up investment firm Waterfall TALF Opportunity?



Sunshine laws passed last year have thrown the door open and have shed light onto just how dirty the dirty Fed may be. We apparently have two budgets: one that's on the books and the other that's off the books. One with which you are familiar with income via taxes and expenditures via aircraft carriers and Social Security payments and the other that is giving out hundreds of billions in near-interest-free loans only to be lent back to the Treasury Department at 3%.

This whole setup — in which millionaires and billionaires gambled on mountains of dangerous securities, with taxpayers providing the stake and assuming almost all of the risk — is the reason that it’s insanely premature for Wall Street to claim that the bailouts have actually made money for the government. We simply can’t make that determination until the final bill comes in on all the dicey securities we financed during the bailout feeding frenzy.

Ditto for the housing market. What completely freaks us out is that Fannie and Freddie are still holding mountains of toxic assets that have not been allowed to be wrung out of the system. To say the housing market is making a rebound is folly until we unwind the entire mess.

Read the entire article here. And since it will appear in Rolling Stone, remember, it was all the Republicans' fault.

Warming up...

Covering a sputtering economy, high un-employment numbers, rising gas prices, a still-uncertain housing market and a 3rd war is, like, so yesterday so it's good to see the press start falling in line with respect to how they are going to cover the 2012 presidential election.

This week President Obama replied to a man who told the president that he is hard-pressed to buy gasoline for his van that he ought to trade it in for a new car with better mileage. Obama assured him he’d probably get a great deal these days—from GM, Ford, or Chrysler, he added. The Associated Press first reported this incident and then scrubbed it from its story; most of the media did not care about it at all, because Obama is awesome.

Some might be tempted to shrug this off as an anecdote about a clueless ruler and his palace-guard press, unsympathetic to people clinging to their vans and religion. But we all occasionally say silly things—we’re only human, not sort of a deity—and it would be unfair to equate the president’s response with Marie Antoinette’s “let them eat cake” remark, because Marie Antoinette did not actually say that.

You can read more about Marie Antoinette here, if you care, but the real concern is that of the present and the future and a pliant 4th estate that for reasons inexplicable continues to provide cover for an administration that is mired in over-its-head incompetence.



(UPDATE #1): The video doesn't lie. Here's the ladies of PJTV on our lecturer-in-chief and his energy policy that apparently consists entirely upon buying cars no one wants nor can afford.





He just doesn't get out much, now does he?

So it wasn't Bush's fault?

Just sayin'...

Evidence outlined in a Pentagon contractor report suggests that financial subversion carried out by unknown parties, such as terrorists or hostile nations, contributed to the 2008 economic crash by covertly using vulnerabilities in the U.S. financial system.

The unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman, a copy of which was obtained by The Washington Times, states that “a three-phased attack was planned and is in the process against the United States economy.”

While economic analysts and a final report from the federal government's Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine.

“There is sufficient justification to question whether outside forces triggered, capitalized upon or magnified the economic difficulties of 2008,” the report says, explaining that those domestic economic factors would have caused a “normal downturn” but not the “near collapse” of the global economic system that took place.

Suspects include financial enemies in Middle Eastern states, Islamic terrorists, hostile members of the Chinese military, or government and organized crime groups in Russia, Venezuela or Iran. Chinese military officials publicly have suggested using economic warfare against the U.S.

In an interview with The Times, Mr. Freeman said his report provided enough theoretical evidence for an economic warfare attack that further forensic study was warranted.

However...

Paul Bracken, a Yale University professor who has studied economic warfare, said he saw “no convincing evidence that ‘outside forces’ colluded to bring about the 2008 crisis.”

“There were outside players in the market” for unregulated credit default swaps, Mr. Bracken said in an e-mail. “Foreign banks and hedge funds play the shorts all the time too. But suggestions of an organized targeted attack for strategic reasons don’t seem to me to be plausible.”

And check this out:

Regardless of the report’s findings, U.S. officials and outside analysts said the Pentagon, the Treasury Department and U.S. intelligence agencies are not aggressively studying the threats to the United States posed by economic warfare and financial terrorism.

“Nobody wants to go there,” one official said.

A copy of the report also was provided to the recently concluded Financial Crisis Inquiry Commission, but the commission also declined to address the possibility of economic warfare in its final report.

Officials, who spoke on the condition of anonymity, said senior Pentagon policymakers, including Michael Vickers, an assistant defense secretary in charge of special operations, blocked further study, saying the Pentagon was not the appropriate agency to assess economic warfare and financial terrorism risks.

Mr. Vickers declined to be interviewed but, through a spokesman, said he did not say economic warfare was not an area for the Pentagon to study, and that he did not block further study.

Mr. Vickers is awaiting Senate confirmation on his promotion to be undersecretary of defense for intelligence.

(italics, ours)

Yeah, it may be a thorny issue and inconvenience some people but someone ought to be checking into this, no?

So, what do you all think?

We anxiously await feedback from commenters who have much more experience than we do in IT and cyber-security.

Fannie and Freddie have some really good news for you...

... but first, the bad news.

According to a government study based upon 3 predicted models of the economy, the cost of the bailouts for Fannie Mae and Freddie Mac may grow to $363 billion over the next three years. This figure was based upon the worst case scenario of the 3 models which comprised of a stalled economy and sluggish home sales.

And now, the good news.

If housing prices recover quicker than expected, the two companies would need a combined $73 billion on top of the $148 billion they already have received in bailout funding, according to new projections from the Federal Housing Finance Agency.

If prices stay on their current course, the bailouts would total $238 billion.

See. Don't you feel better?

And recall how last Christmas Eve, two-time tax cheat, Tim Geithner, lifted the cap on how much tax-payer money could be poured into Fannie and Freddie and to put a cherry on top of all this, we mused the following at the time:

Just how toxic the assets that Fannie holds may be difficult to figure out since Fannie effectively wacked their own Inspector General. And to keep form, don’t expect the Justice Department run by that miserable hack to look into it. This also begs the question, with no IG oversight and no effective spending limit, what’s to keep Fannie from continuing to encourage and back subprime lending?

After all this, it does not appear there is much in the way of checks or incentives to prevent another housing bubble.

Redux?

From the Wall St. Journal:

Fannie Mae,(...) launched an initiative in January that allows some first-time home buyers to get a loan with a down payment of as little as $1,000. Securities firm Morgan Stanley Smith Barney, a brokerage operation jointly owned by Morgan Stanley and Citigroup Inc., is offering some clients home-equity credit lines of as much as $2.5 million.

Credit-card issuers mailed 84.8 million offers of plastic to U.S. subprime borrowers in the first six months of this year, up from 43.7 million a year earlier, estimates research firm Synovate. Nearly 8% of loans for new cars in the latest quarter went to borrowers with the lowest range of credit scores, up from 6.2% in (...)'s fourth quarter, according to J.D. Power & Associates and Fair Isaac Corp.

(deletions, ours)

So when was this written? 3 years ago? Maybe 5? How about last week.

What does this tell us possibly about the financial reform bill's ability to address sub-prime lending and too big too fail?

It would appear that, at least on the surface, there has not been a fundamental change to how business will be done on Wall Street and that the large financial institutions know that Bailout Nation is here to stay.

Predictable

So, about all that railing against Keynesian gimmickry we've been going on and on about:

Existing U.S. home sales climbed in May for a third month as buyers took advantage of the remaining weeks of a tax incentive, says economist Ian Shepherdson at High Frequency Economics Ltd. Judging from the recent drop in mortgage applications, sales may plunge in coming months.

As the CHART OF THE DAY shows, financing requests for home purchases plunged 42 percent from late April through early June, to levels last seen at the start of 1997. The decline reversed a 48 percent surge in the two months leading up to an April 30 contract-signing deadline to qualify for the home-buyers’ tax credit. (To see an Interactive Insight version of the story, click here.)

Existing home sales, which are tallied when transactions close, will rise 6 percent to a 6.1 million annual rate in May, economists surveyed by Bloomberg News forecast before today’s report from the National Association of Realtors. Purchases may hold up in June because buyers still had time to make the June 30 closing date to qualify for the credit. Then, beginning in July, sales will tumble, Shepherdson said.

(italics, ours)


(please click to enlarge)

Just like Cash for Clunkers, the demand-side gimmickry imposed by the Obama administration has only served to displace demand to the left, delaying a wringing-out of the housing market and forestalling a true recovery where housing prices reflect true market values instead of being distorted by cheap money.

Combine this with the expiration of the Bush tax cuts at the end of the year which is pushing economic activity into 2010, we are not optimistic about a strong rebound in 2011.

Welcome to the Party, boys!

Reading the Times editorial "Greece's Lessons for Us", you'd a thunk that they were regular readers of BwD. Listen to some of this stuff:

Greece's financial crisis recalls the folly of American home buyers who took out subprime loans to buy houses they couldn't afford, only to be stuck with a crushing debt when the real estate market collapsed. Thanks to a $146-billion bailout from other European countries and the International Monetary Fund, Greece won't be defaulting — at least not right away. But the aid package may just be the first in a series to bring the Eurozone back to financial health. And although the details differ, the outlines of Greece's woes are troublingly familiar.

Whether or not a series of bailouts will bring the Eurozone back to health is dubious but that first part about American homebuyers taking out subprime loans they couldn't afford? Double-checking to see if this really is our beloved L.A. Times.

Greece dug itself into a deep hole over the past decade, abetted by low interest rates and willing lenders. The government provided jobs and generous pensions to about one-quarter of the workforce, sacrificing productivity for social stability. After a recession sent the country's deficit soaring, lenders started to balk at the government's demand for credit, pushing Greece toward default.

We hardly knew ye.

The U.S. budget deficit and debt aren't up to Athenian levels. But like Greece, the U.S. government has committed to providing benefits that it cannot afford over the long term. Policymakers have seen the problems in Social Security and Medicare coming for years, but Congress has done little about them. If anything, lawmakers made the task more difficult with this year's healthcare reform law, which trimmed Medicare spending but dedicated the savings to a new healthcare insurance program for the working class.

Article finishes off with a screed about unsustainable public employee union pensions and some rantings about revenue not matching out-of-control spending.

We sincerely wish there was some gracious way the Times could walk back what could rightly be construed as an unseemly association with the unwashed mob but as you have just read, the West's paper of record has let the horse out of the barn and must now suffer the charges of "un-patriotic", "un-civil" and, of course, "racist" along with the rest of us.

Tales from Bailout Nation Pt. XXIV.5

When we blogged a few days ago about Fannie and Freddie regulator, Armando Falcon's, testimony before Congress with respect to the attacks unleashed upon him by those GSEs when he had the temerity to suggest that those two GSEs might be on some questionable financial footing because of loose lending practices and Enron-like accounting practices, we left out a minor detail, though, it's one that should not surprise you if you've been a regular reader: Fannie and Freddie are still going to require a wee more bit o' cash.

A pair of former regulators who oversaw Fannie Mae and Freddie Mac told a panel Friday that the two government sponsored enterprises - which taxpayers have already bailed out to the tune of $125 billion - will likely need even more aid.

Their testimony came on the third and final day of this week's Financial Crisis Inquiry Commission hearings on securitization and subprime lending. The panel tasked with determining the factors that contributed to the financial crisis.

Armando Falcon and James Lockhart, former directors of the Office of Federal Housing Enterprise Oversight, said the price tag for taxpayers would almost certainly climb, as Fannie Mae and Freddie Mac to draw on their credit lines.

And how much more tax-payer cash are Fannie and Freddie going to require? Does it matter? Let's hit the way-back button to this past Christmas Eve, yes, Christmas Eve when Treasury boss and two-time tax cheat, Timothy Geithner, effectively removed the cap on how much more money could be poured into Fannie and Freddie.

The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.

It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.

Fannie and Freddie are still holding these toxic assets and not only is there not any incentive for them to shed them so we can begin a true recovery in the housing market there is not any incentive for them to continue bad lending practices.

Why we are even bothering holding these hearings is a mystery to us.

Tales from Bailout Nation Pt. XXIV... and quote of the day

"we encountered more difficulty and delay. Fannie's lobbyists were on the Hill spreading misinformation about my motives and asserting that the special exam was unnecessary."

That from Armando Falcon, a former regulator at the Office of Federal Housing Enterprise Oversight (OFHEO), the GSE watchdog who was testifying before the Financial Crisis Inquiry Commission regarding Fannie Mae. Falcon further testified that whenever faced with a report with negative connotations about the company, Fannie's supporters would launch an assault on OFHEO -- from a full investigation of the group to demanding Falcon's resignation.

Now, they wouldn't have done such a thing now would they? And why does that name, Armando Falcon, ring a bell? Why, yes. Why, yes, indeed. Falcon was made an absolute whipping boy back in 2004 during congressional testimony when he testified to Fannie Mae's illegal accounting practices.

From the interweb archives, one of our favorite videos of all-time: for your viewing and keeping-the-record-straight pleasure, it's Lacy Clay (D-MO) throwing out racially-charged grenades and Maxine Waters extolling the virtues of zero down loans and the total awesomeness of Franklin Raines.



Exit question: How is it that Franklin Raines is walking around a free man, right now?

There really is nothing new under the sun

A couple of days ago we blogged about the displeasure D.C. pols have exhibited towards what they perceive as an under-achieving HAMP (Home Affordable Mortgage Program) program.

Alas, and as predicted, statists will never recognize the failure of a government program and, as such, rather than scaling back or shutting down HAMP they are going to throw more money at it.

The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.

Protests like the one that will go down in November of this year, to be precise.

If we sound like a broken record it's only because we're being cued by the actions of the Obama administration.

Re-read those paragraphs above from the NYT article and tell us they could not have just as easily appeared in print back in July '09, Nov. '09, or Jan. '10.

A Government success story?

A story about existing home sales falling for the 3rd straight month also included the following:

The number of homes on the market jumped 9.5 percent, pushing the time it would take to sell all properties at the current sales pace up to 8.6 months from 7.8 months at the end of January.

The increase in supply last month was “unusual” and “discomforting,” Lawrence Yun, the Realtors’ chief economist, said in a news conference. The jump may be caused by more distressed properties coming on the market, particularly condominiums, and by trade-up buyers who are now putting their houses up for sale before purchasing another property, he said.

If inventories exceed a 10-months’ supply, it would lead to larger price declines and signal the housing slump was not over, he said

.
(italics, ours)

Distressed properties = foreclosures


In other totally related news:

Scrutiny of the Home Affordable Refinance Program is heating up in Washington, as lawmakers continue to question the mortgage refinancing program and say it is failing to meet expectations.
The House Oversight Committee announced today that it will hold a hearing to examine the program Thursday.

Special Inspector General for TARP Neil Barofsky is scheduled to release his report on the program at the meeting. Herbert Allison, who oversees the Troubled Asset Relief Program for the Treasury Department, also is expected to testify.

The $75 billion HAMP program, which can use up to $50 billion of TARP funds, provides incentive payments to lenders who can help responsible borrowers modify their mortgages.

(ed. note: The TARP program was never intended for this)

Earlier this year, committee chair Edolphus "Ed" Towns (D-N.Y.) requested data on the program from the Treasury Department as part of an investigation into HAMP.

Towns has criticized the program for failing to require that lenders give homeowners an explanation for a modification denial and for failing to establish an appeals process.

That's because, Ed, HAMP lenders are rolling on the floor in gut-wrenching laughter after seeing the nature of these appeals for assistance and are unable to respond.

Seriously, could this actually be good news? Could it be good news that an inefficient government bureaucracy is, in reality, aiding the "purge" cycle of a recovery as they are unable to throw good money after bad to homeowners compelled to stay in their homes by the lure of cheap, easy government money?

The article goes on to talk about the difficulties in assessing what constitutes the success of the program and that leads to a very interesting point. By usual government standards, they would simply point to the number of cases that have been processed and/or the amount of money expended through the program but as we alluded to above and which is a point we have long been critical regarding these types of programs, the housing market is little served by keeping distressed homeowners on terminal life support.

Generally speaking, foreclosing and moving into a cheaper rental in order to save up money to enter the market in a more solid financial situation in the future is better for everyone all around. But dammed if the government is going to let you out of your American Dream that easily.

No one seems to be pleased with the HAMP program,as is, but rather than shutting it down, recognizing it for the failure it is, rest assured, tweeks will be made to speed up processing which will also entail loosening qualifying criteria and lending standards... is any of this sounding familiar?... so that the bean counts start meeting approving nods.

Double-dip, anyone?

Quote of the day

...while the healthcare debate rages, there is still other business being tended to in D.C.

“Americans are frustrated and angry, as we all know, they've lost faith in our markets, and they wonder if anyone is looking out for them.”

That from the on-his-way-out-the-door, Connecticut Senator, Chris Dodd unveiling new sweeping financial regulations that came out of committee on Monday.

It is now confirmed that Congress has a special tailor on the premises solely for the purpose of fashioning the appropriately-sized pants required to house the basketball-sized stones possessed by the likes of Chris Dodd and Barney Frank.

How else does one explain a man sitting in the epicenter of the financial/housing meltdown and who was getting sweetheart deals on his own properties from Countrywide Mortgage, saying something like that and there not be such a person? Wouldn’t it be downright embarrassing for all involved for Dodd and Frank to be bouncing around Capitol Hill sans culottes?

It is duly noted that Dodd made his announcement at a news conference alone – not even accompanied by any of his fellow Democrats on the Banking Committee that he chairs. The man is that toxic. This could be the greatest piece of legislation ever written but the man has zero credibility on this or any other issue for that matter and no one wants to be associated with the man as he pushes for his legacy bill.

Happy Trails, Senator

Up in smoke?

Doggone, we hate being pessimists but tell us where we are missing the signs that the housing market isn't resting on another artificially inflated bubble that is about to collapse.

The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures that could further buffet an agency vital to the housing market’s recovery.

About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency’s figures show.

Although the FHA’s default rate has been climbing for months and eating into the agency’s cash, the latest figures show that the FHA’s woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

If the trend continues and the FHA’s cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses — a first for the agency, which has always used the fees it charges borrowers to pay for its losses.

(H/T: Hot Air)

Bounce that against this from the TARP Inspector General:

To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

H/T: W.C. Varones

In the IG’s report the term "moral hazard" is used and is deemed an important enough term to have it’s definition explained in the margins of the report. Moral hazard is an economic and insurance term used to describe the lack of incentive an individual may have when it comes to guarding against risk. In short, what incentive do you have to maintain a car worth $10,000 when it is insured for $20,000? You don’t. In fact, the whole scheme becomes perverse as you are running for the lighter fluid to torch that puppy to collect on the insurance.

And it’s this moral hazard that represents the ultimate failure of Bailout Nation. Everyone from bank execs to lenders to homeowners have been presented a (false?) sense of security. The consequences that would normally result from bad/risky behavior in a free market are blunted if not eliminated altogether by the myriad of federal bailout programs that are having the same exact effect on the concept of personal responsibility as has the failed policies of the welfare state except on a much grander scale.

More fun with adverbs

Sales of new homes in the US unexpectedly dropped in December, the latest sign that government support is causing swings in the performance of the housing market.

New home sales fell by 7.6 per cent last month after falling by a revised 11.3 per cent in November, commerce department figures showed. Wall Street analysts predicted an increase.

The decline follows disappointing performances for existing home sales and home prices, which dipped after the original expiration date of the first-time homebuyer tax credit. Economists have argued that the credit, which was extended from last November to April, gave housing a false boost and ‘’stole from future demand’’.

“The hangover from the ‘end’ of the first-time homebuyer tax credit continues,” said Ian Shepherdson, chief US economist at High Frequency Economics.

Again with the “unexpectedly”…. again. Gotta hand it to these experts and analysts, though – the fact they are able to stay employed for being as wrong as they continually are is a testament to their raw survival skills.

Want to bet that 7.6% figure gets unexpectedly revised upwards once more data comes rolling in?

Of course, this article confirms what we’ve been bitching about from the beginning: these horrible demand side prop-up programs have distorted the market by spiking the demand curve to the left and have exacerbated an already bad market situation by encouraging bad risks to enter the market and bad risks to stay in the market.

It's become apparent we are not going to modify our way out of this

From the Dept. of Inevitability overseen by the Bureau of We-told-you-so…

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

We’re not quite sure where to even begin with this. The article goes on to contend that banks have been using temporary loan mods as a justification to avoid an honest accounting of the mortgage losses still on their books. We are attempting to recover a segment of the economy in which we still don’t know how much of it is toxic because we are papering it over with tax dollars and kicking the can down the road? Terrific.

Kicking the can down the road instead of letting the natural market forces to wring the excesses and toxic assets out of the system.

But by artificially propping up the housing prices, people who cannot afford their homes are poring money down a black hole and keeping their home ownership dream alive on promises from the government. And capital that would have been otherwise freed-up to other parts of the economy as those people moved into a cheaper rental while they got back on their feet is now lost forever.

And, obviously, this artificial housing price prop-up, keeps out people who really would be able to afford a home in normal circumstances. But normal has nothing to do with radically transforming the American way of life or something.

And even with all this “help” don’t expect things to get any better.

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Oh, but they will. Trust us on that because we all know that the statist solution to failed statist policy is more statism and we guarantee you that Moody’s prediction was based partly on that.

Great moments in the history of statism Pt. VII

A reporter from the Clevand Plain Dealer got out from behind his desk, did a little digging and found that the city of Cleveland was handing out home loans via HUD’s Afford-A-Home program to homeless and jobless people with the entirely predictable results.

The city of Cleveland has aggravated its vexing foreclosure problems and has lost millions in tax dollars by helping people buy homes they could not afford, a Plain Dealer investigation has found.

The city provided mostly low-income buyers with down payment loans of up to $20,000 through the federally funded Afford-A-Home program, but did little to determine whether the people could actually afford to keep their homes.

That lack of oversight persisted for years, even as hundreds of loan recipients defaulted on mortgages, many within two years, the newspaper found by analyzing property and loan records covering the period between 2000 and 2007.

In other completely unrelated news today….

First, it was S.W.A.T teams and then naughty and nice lists published by Treasury Dept. and now what is going to be affected to spur banks to lend to homeowners and businesses? How about more arm-twisting by the President?

Meeting with top executives from 12 financial institutions, Mr. Obama sent a clear message that the industry had a responsibility to help nurse the economy back to health and do more to create jobs in return for the huge federal bailout last year that kept Wall Street and the banking system afloat.

But Mr. Obama also confronted the limits of his power to jawbone the industry as banking companies continued to repay government money received in the bailout. Citigroup and Wells Fargo, two of the biggest, announced on Monday that they were doing precisely that.

President Obama pressured the heads of the nation’s biggest banks on Monday to take “extraordinary” steps to revive lending for small businesses and homeowners, prompting assurances from some financial institutions that they would do more even as they continued to shed their supplicant status in Washington.

Don’t think it was coincidence that both Citigroup and Wells made this announcement when they did. They want to eliminate as much bully pulpit leverage from the government as fast as humanly possible.

For their part, a few of the banks, did make some specific pledges to increase lending to small businesses. No such pledges were reported as being made for the housing sector, though.

The banking executives promised Mr. Obama that they would take second looks at loans they had denied over the last year. Richard K. Davis, the chief executive of US Bancorp, told reporters after the meeting that the executives were aware of the public perception that they were profiting with hefty bonuses at taxpayer expense, and that they realized they were “under a microscope” and needed to align themselves more closely with the needs of consumers.

Call us crazy but perhaps the loans were denied the first time around because they were bad risks. One would think that the banks might have some expertise in that area. But forgive our lack of populist outrage regarding bank executive compensation when we stand dumbfounded observing an alignment of circumstances that look eerily similar to that which caused this meltdown in the first place.

But as we've said all along, the statist solution to failed statist policies is just more statism.


More "Great moments..." can be found here.

Burning down a recovery?

More evidence of attempting to strong-arm the housing sector back onto solid footing. Again, does this sound like behavior one would expect in a nascent recovery? Remember, this comes on the heels of publishing “good” and “bad” lender lists and federal swat teams:

President Barack Obama will meet with chief executives of major banks on Monday and is expected to urge them face-to-face to lend more money to help promote economic recovery, banking sources tell POLITICO.

The lending issue irks some in the industry. “The White House’s political people like [senior adviser David] Axelrod tell us to lend more,” said one banking official. “But the regulators are saying the exact opposite. They’re saying, ramp up your capital ratios, and if you see default risk on the horizon, cut back on lending.”

And here is Ed Smith Jr., president of the California Mortgage Brokers Association:

I believe the Home Affordable Mortgage Program (aimed at encouraging lenders to modify the terms of their loans) was a good attempt at giving people a real chance to keep their homes. But there’s been a dismal response from lenders. They’re not modifying enough loans to address the foreclosures currently on the market, let alone doing anything about the shadow market.

A lot of lenders won’t deal with you unless you’re already in default. So people get pushed into default, which impairs their credit for years. They lose their home, get pushed into rentals and lose the opportunity to pass on their wealth to the next generation. This is especially true in the minority population, where home equity is often the principal source of wealth.

A colleague of ours at work attempted recently to refinance her house with her current lender. She was informed over the phone that she made too much money and that she was not delinquent in any of her payments and thus could not qualify for a re-fi.

She explained to the lender that she was not attempting to re-fi under the HAM Program as a distressed homeowner rather a standard re-fi to take advantage of the low interest rates. The lender sent her a letter in the mail a short time later saying that she did not qualify for her “hardship assistance request”. However, they’d be more than happy to help her sell her home if that’s what she desired.

(Incidentally, this particular lending institution would be on the Fed’s “good” list as per a graphic showing which lending institutions had made the most permanent loan modifications to distressed borrowers which was displayed in the Dec. 1st print version of the San Diego Union-Tribune but, unfortunately, not in the electronic version).

So, connecting the dots, we have a situation created by the Feds whereby they are intimidating lenders into making permanent loan modifications with distressed and/or defaulted mortgages that may or may not be a good risk while at the same time, are warned not to do so by their regulators.

This comes at the expense of homeowners who are on stable financial ground and those who aren’t, necessarily, and are teetering on the edge of defaulting, a condition that becomes more and more likely as lending institutions can’t be bothered with anything but bad risk cases because they are at once being bullyed by and attempting to seek favor with the Treasury Dept.

Again, we have to ask the question: does this sound like a formula to enable a robust housing recovery? It doesn’t take a housing expert like David Axelrod to realize we are repeating many of the same mistakes that led to this meltdown in the first place.