There’s always something to howl about.

Month: September 2008 (page 1 of 7)

VA and FHA Higher Loan Limit Extension Through 2011: The Main Street Bailout

We don’t have a “Main Street” in Southern California; we have the US Route 101 (or CA State Highway #1). We call it the Coast Highway, the Pacific Coast Highway, or the PCH.  When I think of a bailout plan for Main Street, I think of it for homes within 5-10 miles of the PCH.

We got that “Main Street bailout” a few months back.  FHA loan limits were hiked to as much as $729,000, earlier this year and the VA followed suit, this summer.

Both provisions are gone after Christmas…unless…

…President Bush gets to leave a legacy for the Main Streeters on the coasts.  The scuttlebutt in D.C is that President Bush wants to extend the life of those temporary loan limits, for FHA and VA, through 2011.

This program has helped us a lot.  Consider that California loan originators have funded more FHA product in August, 2008 than we have in the prior two years.  When declining market conditions limited agency jumbo loans to 85% loan-to-value, FHA picked up the slack.  With the tenuous outlook for PMI companies, FHA and VA jumbos are filling the vacuum for new home buyers.

It is further rumored that these “guvvie jumbos”, limited to purchase transactions, will be made available for refinance transactions; 100% loan-to-value for VA and 95% loan-to-value for FHA.  The rumor is that President Bush believes that government financing can provide relief for homeowners stuck in jumbo ARMs, soon to be adjusting.

It’s conjecture at this point but we may just have these loan products until 2011.

A Quick Primer on Liberal & Conservative Economic Theory

We may or may not be in favor of the bailout.  We may or may not fully understand what the bailout will or won’t do.  We may or may not be any smarter than the politicians who (in my humble opinion) don’t have a clue what the bailout will or will not do.  But I am guessing we can all recognize good ideas from bad ideas.  It’s easy: the former stimulates business and the latter stifles it.

Case in point (you can read the full story here):

Congressional leaders scrambled Tuesday to come up with changes to help them sell the failed $700 billion financial bailout to rank-and-file members. One idea gathering support: raise the federal deposit insurance limit to reassure nervous savers and help small businesses…

Republican House aides said the FDIC proposal might attract some conservatives who want to help small business owners and avert runs on banks by customers fearful of losing their savings…

Another possible change to the bill would modify “mark to market” accounting rules. Such rules require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years…

Some House Republicans say current rules forced banks to report huge paper losses on mortgage-backed securities, which might have been avoided…

Liberal Democrats who opposed the bill are suggesting other changes. Their ideas include extending unemployment insurance and banning some forms of “short selling,” in which investors bet that a stock’s value will drop…

The conservatives want to

  • Raise the insured limit on bank deposits.  Of dubious actual benefit in my opinion – but tough times call for paper mache measures.
  • Change the mark-to-market rules.  The mark-to-market rules are onerous to investment companies and do not reflect asset values accurately.  This should have been enacted long ago.  Using the bond concept of yield to average life would make more sense.

The liberals, on the other hand, want to

  • Extend unemployement insurance.  What? To stimulate the economy you want to increase the weight of one of its anchors?  I know this is Read more

No One to Root For…

I wrote yesterday that we were Front Seat to History, but main stream press continues to miss it and I fear I was a little too cavalier in my writing.  The real story here is not the initial failure of the bailout, but the in-your-face blatancy of our politicians.  There is no longer even the veil of accountability or representation.  I know this is a political philosophy question regarding representative government, but there has always been at least lip service paid to the idea of politicians keeping their finger on the pulse of their constituents.  Senator McCain said “Americans are frightened…” and the Democratic leadership is returning to the bargaining table in hopes of enticing more politicians from both sides of the aisle to vote against the wishes of the very people who voted them into office.  Today we had President Bush demand “Congress must act.”  In most scenarios, if  the White House disagrees with congress, the President takes it to the people and admonishes all of us to call, write or email our representatives and let them know how we feel.  But in this case there is no call to action.  Why is that?  Obviously the majority of America does not agree with the bailout as it is presently understood, but there is more to it.  Congress and our executive leaders are all of one mind: get this done despite what middle America thinks.  This has two connotations:

  • Don’t bother representing your constituents – they are too stupid to understand.
  • Don’t bother representing your constituents – they are not the ones who pay your bills.

Either way I want to SCREAM OUT to everyone watching this.  I want to say: Pay Attention!  It is rare that an event of this magnitude happens close enough to an election that we witness the true motivation of those who run for office.  If you feel a disconnect with your elected officials… is it any wonder?

Tom’s Top Ten Reasons He Doesn’t Like the Bailout….

  1. Because a government intervention the financial systems rarely works well.
  2. Because it fails to acknowledge the fundamental shift that is occurring in our society as we move from being “overleveraged” to using credit responsibly.
  3. Because Nancy Pelosi likes it.
  4. Because no one has been able to prove that by buying this garbage from the banks, it will do anything to actually help credit get done.
  5. Because Barney Frank likes it.
  6. Because JP Morgan and the FDIC were able to work out a very smooth transition when Washington Mutual closed down last week and it was done without any unusual interventions.
  7. Because the bailout refuses to consider that not all banks are equal.   Those who are most likely not going to make it would get the same government money as those who are perfectly healthy.    That’s just not right.
  8. Because Rep. Peter Hoekstra (R-Michigan) voted against it, and I have a lot of respect for Pete.
  9. Because the Main Stream Media is preaching an unbelievable amount of panic, distrust and fear and they are doing it with items that are not factual.
  10. Because the government hasn’t done a good job (because I don’t believe they can) in showing that there’s a connection between buying bad assets from the banks and helping Main St.
  11. Because Citigroup and the FDIC worked out a “take over” of Wachovia without any significant market disruptions and without any unusual bailout efforts.

Okay, so it was actually 11.   The point is, the bailout is not good for our country and not good for our economy.   Are banks going to fail?  Yep.   Do I hope that “my bank” isn’t one of them?  Yep.   But like Jeff Brown says, we know how the story ends up and we’ll all be fine.

Tom Vanderwell

Wachovia Fails… Did You Notice?

Lost in the tsunami of bail-out failure, Wachovia gave up the ghost.  Wachovia now joins Countrywide and WaMu as the big three option arm originators now become three of the biggest financial failures of all time.  If this looks familiar to any posts you may have read here at BHB, including those on The Mortgage Dance and Wachovia Completes the Gang of Three, consider it pure coincidence.

Does it sound like I am gloating a little over the downfall?  I am.  Option arms were the tool and bribery was the modus operandi.  Loan originators fed their greed while homeowners lied to get homes they could not afford and Wall Street leveraged the whole thing to apocalyptic proportions.

I wonder if there is enough blame to go around.

Front Seat to History

Whether or not you approved of the bailout, you have to count yourself lucky to be witnessing an historic event.  Take a good, hard look at what is unfolding before us.  One elected official after another said they could not vote for this legislation because their constituents back home were not in favor of it and would vote them out of office.  As a matter of fact, this was part of an openly discussed game plan yesterday before the vote:

Both parties were also scouring the political map to identify lawmakers who face little or no opposition for re-election in November, knowing they would be more willing to vote yes. New York Times News Service

Think about that again.   They wanted to vote for it, but the people they represented were overwhelmingly against it and would have thrown them out for approving the bill.  How often does anything of REAL importance happen this close to an election?  This is so close to election time that the legislators are accountable for their votes.  Imagine that!  And they are scared.  They can not do their politics as usual because they don’t have time so spin it.  This is a magical time to witness: politicians acting out of accountability rather than self-interest.  Were that it was always true…

An Update on the Bailout….

and yes, after doing some more reading on it, I do still consider it a bailout.

I’m going to put a copy of a post that Yves at Naked Capitalism wrote in italics and then my comments will be interspersed in bold print and then I’ve got more thoughts at the end.

Hope this helps you understand it better.

Congressional Charade: Changes in Bailout Bill Cosmetic, and Everyone Knows That

For a quick, one-stop synopsis of the Mother of All Bailouts (as of this month), see this readable version at Clusterstock (we’ve become a recent convert to this site).

Reader and sometimes contributor Lune, who was once a Congressional staffer and still subscribes to the the inside-the-Beltway press, provided a wrap of their coverage of the bailout bill. It makes clear that everyone understands that turning Hank Paulson’s three pager into a 110 page draft made for a nice fig leaf but made virtually no substantive difference.

Gee, why doesn’t that surprise me.   They added 107 pages of rules and regulations and it’s basically just spelling out the same difference as before.

From Lune:

Well folks, we’re almost to a done deal (certainly closer than Thursday). The Hill papers are reporting that they’re getting closer in both the Senate and the House to the needed votes to pass the new bailout bill. Roll Call gives the most frank assessment of what happened over the weekend in an article entitled “Same Bailout, New Dynamic” (subtitle: Outrage Prompts Sales Effort).

All the late-night talks, last-minute demands and dramatic pronouncements aside, the fundamental structure of a $700 billion Wall Street rescue plan that Congress spent the weekend wrangling over has not changed significantly from the outline proposed by a bipartisan group of Senators and House Members last Thursday.

Did you hear that?:  It’s basically the same deal as last week Thursday, just spun differently.

“This is in essence the same,” said Sen. Bob Corker (R-Tenn.), who attended those talks.
. . .
Assuming enough House Republicans agree to vote for the package, it appeared that the House could vote as early as today, while the Senate might have to wait to take it up Wednesday after Rosh Read more

In a declining market, buying a short sale is too tall an order

This is my column for this week from the Arizona Republic (permanent link).

 
In a declining market, buying a short sale is too tall an order

Is it time to kick the stilts out from under short sales?

Right now in most neighborhoods in the Phoenix area, the houses that will draw the most attention from buyers will be either short sales or lender-owned homes. They’ll be in all states of repair, but the prices will be very aggressive.

And of those homes, the lender-owned homes will actually sell. They may be completely trashed, but the people whose job it is to sell those properties are judged by how quickly they can unload non-performing assets. Make an aggressive offer and you’ll get a aggressive deal.

There are downsides, of course. You can inspect all you want, but don’t expect repairs. Because of this, many lender-owned homes will not qualify for FHA or VA financing. And once escrow closes, you’ll have to restore the home to livable condition.

By contrast, a short-sale home might be in better condition. And it might be even more aggressively priced. The trouble is, the price in the MLS listing will be meaningless. The seller can approve that price, but the seller’s lender has to approve it as well. And the people who approve short sales aren’t judged by how quickly they sell the home but by how much money they bring in.

The lender can take from 60 to 90 days to respond to your offer for a short sale home. And the response may be to counter at a higher price. If you counter back, you may wait another 30 days for a response.

Here’s the worst part about this unwieldy procedure: Home prices are still falling in the Valley. You could wait months to get approval on a contract for a house that is now worth tens of thousands of dollars less than what you offered for it.

My take? We need to cut short sales off at the knees. It seems foolish for Realtors to take them as listings, and beyond foolish to encourage buyers to pursue them. Lender-owned homes are offered Read more

Promoting Affordable Housing

I didn’t believe it when I read it; the bailout bill is “earmarked” and ACORN is one of the beneficiaries of the largesse.   ACORN may control up to 20% of the $700 billion proffered by the Bush/Obama Bailout Plan.

ACORN?  Are you kidding me?  THIS is what ACORN really is (from Sol  Stern):

ACORN’s bedrock assumption remains the ultra-Left’s familiar anti-capitalist redistributionism. “We are the majority, forged from all the minorities,” reads the group’s “People’s Platform,” whose prose Orwell would have derided as pure commissar-speak. “We will continue our fight . . . until we have shared the wealth, until we have won our freedom . . . . We have nothing to show for the work of our hand, the tax of our labor”—claptrap that not only falsifies the relative comfort of the poor in America but that also is a classic example of chutzpah, given ACORN’s origins in a movement that undermined the work ethic of the poor. But never mind—ACORN claims that it “stands virtually alone in its dedication to organizing the poor and powerless.” It organizes them to push for ever more government control of the economy, as if it had learned no lessons about the free-market magic that made American cities unexampled engines of job creation for more than a century, proliferating opportunity and catapulting millions out of misery.

Remember, ACORN has been one of the largest groups to criticize “predatory lending” and the use of sub-prime loans.  Here’s ACORN President Maude Hurd, speaking about last night’s Presidential Debate:

“Given the recent turmoil in our financial markets and the ongoing negotiations around a bailout package for Wall Street, it’s not surprising that much of the debate focused on the current economic crisis, which was in many ways predictable.  ACORN has been sounding the alarm for years as more and more deregulation stripped protections for consumers and basic safeguards of sound lending.

Senator McCain failed to acknowledge the trigger of this explosive crisis: predatory lending, which entrapped hundreds of thousands of homeowners into toxic mortgages they could not afford fueling record numbers of foreclosures.  If Mr. McCain is unwilling or Read more

Some Details on the WaMu Buyout

In a comment to an earlier post I was sent the link to JP Morgan Chase’s Investor Presentation regarding their purchase of WaMu.  This was courtesy of Bob Wilson, whom readers may know for his many thoughtful comments here on BHB.  I highly recommend reading it by clicking here, but in the mean time – some of the highlights:

  • They are taking over the deposits and leaving the liabilities.  This helps the FDIC out tremendously but I can’t help thinking of the great line from The Godfather: “Leave the gun, take the cannoli.”
  • They plan to exit all non-bank originated retail lending.  Say good-bye to most of WaMu’s products.
  • They are most excited by WaMu’s large presence in California.  According to their projections CA sees the most population growth, followed by Texas and then Florida.  This is great news for these hard-hit areas.  Arizona sees about half the growth rate and the northeast and rust belt continue their problems with fundamentals.  (I believe we are looking at a very stratified housing market for some time to come.  There has never been a national housing market and such a concept is becoming harder to even say with a straight face.)
  • JP Morgan Chase paints a pretty rosy picture of potential earnings.  They look at their credit card and investment sales in-branch and overlay that onto all the WaMu branches.  But I don’t see the same types of customers at WaMu as I do at Chase and I have a hard time believing Chase will get the same level of commercial banking profits from them.
  • Expected cost of this acquisition is $1.5 billion now and another $.5 billion over the next couple of years.
  • They will keep WaMu’s low risk, profitable lending programs in the multi-family niche which should be welcomed by investors who are currently getting shut out of the market by underwriting constrictions.
  • Finally, they project current-pricing-to-trough depreciations for CA, FL and the US as a whole.  The numbers are interesting, but what’s more interesting are the headings.  They project losses based on three scenarios: Current Estimates, Deeper Recession and Severe Recession.  Apparently the analysts feel we are Read more

Mortgage Market Week in Review – to Bail or not to Bail?

Yikes, every week it’s getting more and more challenging to lay out for you what’s going on in the markets.   Hopefully it will get easier, but I’m not really sure that it will for a while.  So what are we going to talk about this week?   This week it’s about the proposed bailout, the biggest bank failure in the history of our country, and a few thoughts from Dick DeVos (huh – trust me, it will fit in later).

The bailout – $700,000,000,000.00. That’s how much money the Treasury wants to have to bail out the troubled financial institutions.   What do they want to do?   Here it is in a nutshell:

  • They want to buy approximately 5% of the mortgage backed securities (presumably the worst ones) from the banks and investment institutions.
  • Why?  The theory is that if they take those loans off their books, that will free those institutions to start lending again (start loading up their books with better loans this time.)
  • Do we have any guarantee that it will work?   Nope, the only guarantee we have is the word of Treasury Secretary Paulson and Fed Chairman Bernanke, both of whom are very smart but both of whom have been wrong on numerous occasions as the credit crisis has spread.
  • Would the tax payer end up paying for the entire $700 Billion?  Long term, probably substantially less than that because, depending on how the portfolio gets managed, because these loans are backed up by assets (houses) and the value of those won’t go the way of Washington Mutual stock and become worthless.
  • Will banks immediately turn around and start lending more to others?   That’s a question that we don’t know the answer to.
  • I read an article this morning that said that the Central Banks might actually be making the problem worse.   How so?   They keep pumping more money into the system and that is making it easy for banks to borrow money from the Fed so they don’t have to borrow money from each other and that has put a squeeze on the normal credit markets.   Interesting Read more

The Mortgage Dance Continues

I posted the following back in July and with WaMu going down it seems like a good time to bring it back to the top.  If there is any confusion as to who is going down and why, make a point of clicking the link on the “accounting debacle”.  It goes to a post from August of last year and will explain a lot about what is really happening and why.

And the beat goes on…  but sometimes it helps to have that little bouncing ball show us exactly what lyric we are singing this week.  All together now:

Today the Fed suprised no one by opening the discount window to ailing siblings: Fannie Mae and Freddie Mac.  Together they hold more than half of all mortgages in the US and the guarantee that they would not fail has been implied for some time.  The Fed also intimated there would be no other bail outs in the foreseeable future.  Who is walking the thin line?  WaMu, Wachovia, Downey, Indy Mac (oops, they were written out of the chorus last week).  Now it looks as if the Fed has reworked a few more lines and their song to the Wall Street firms goes a little something like this: if you can not fix your problem with the ability to borrow at 2.25%, your problem is not fixable.

This does not bode well for our short list.  Downey is more of a regional and will likely go down under its own weight of Losses and Lawsuits (the real ”L” words).  Previous posts right here on BHB have fixed WaMu as the consensus “next big one” to fall.  Wachovia, in my opinion, is more of a question mark.  Straight-laced, tea-loving bank goes to a frat party where “everyone who is anyone” is drinking and the peer pressure just becomes too much.  This is a hangover for which they are ill prepared.

What does this mean for real estate and the mortgages that drive its cycles?  Here’s one thought: if you are a specialist in homes that do not play the Fannie/Freddie tune, you may Read more