The Sands of Time are Running Low

"Im waiting in my cold cell when, the bell begins to chime. Reflecting on my past life, and it doesnt have much time. Cos at 5 oclock, they take me to the gallows pole. The sands of time, for me, are running low." -from "Hallowed be thy Name" by Iron Maiden

On a day when tech earnings were able to give a lift to the overall market, the really interesting headline of course comes from our favorite mortgage company Countrywide (countryfried?) Financial (from Yahoo finance):

Countrywide to Modify $16B in LoansTuesday October 23, 11:24 am ET By Alex Veiga, AP Business Writer
Countrywide Launches Program to Refinance or Modify Mortgages
Key quote : "Unprecedented times call for unprecedented remedies," Countrywide President and Chief Operating Officer David Sambol said in a statement."

The loan redo dance was done before by Countrywide, and will probably be tried several times in the future. What would you do if you had over 13,000 (yes 13,000) homes that you owned and are looking at that number skyrocketing in the future? There is a blog dedicated to this process: http://countrywide-foreclosures.blogspot.com/2007/10/13061-homes-offered-for-sale-on.htmlclosures.blogspot.com/2007/10/13061-homes-offered-for-sale-on.html/2007/10/13061-homes-offered-for-sale-on.html

Loan reworking can involve many different things. Some loans can be FHA or Fannie Mae transferable at a certain rate (no bailout here! Move along). Another option is extending the payment timetable up to 40-50 years. Here's some free financial advice for anyone that wants it, if it is going to take you over 60% of your life on earth to pay something off, you cannot afford it. Your welcome.

Never mind the feasibility of these loan reworks, the main point is that Countrywide is stalling for time. In the same way, the SIV Superfund is also trying to buy time. I have renamed the fund and think it should be called the Price Discovery Delay Doomsday Device. It does not roll off the tongue, but its a far more descriptive name.

The problem with CFC and the banks in the Superfund is that they are working under a theorem which estimates a turnaround in the housing market in a relatively short time frame. How short? Good question. I would guess at somewhere between 6 months and a year and a half is what they need to have happen. That is not really a possibility however. In last nights post I linked to a mortgage reset chart which shows things are going to get worse over the next year. I also think the mortgage and home builder sectors have underestimated how much home sales have been front loaded over the last few years. Basically all home demand for the next 10 years was spent in the last 3 years. Add to that the enormous amount of pure speculators in the market, and demand will be suppressed for some time. Psychology is a hard thing to change, and after a sea change in psychology as it pertains to home buying, things are going to be weak for a while.

To illustrate this point, the website Alexa.com (http://www.alexa.com/) is a free tool on which you can track web traffic. If a big turnaround is coming for housing, it stands to reason that people may be actively searching real estate sites to look at homes. Well, lets take a look:

realtor.com 2002-present



WOWZA! That's one ugly, hit with a bag of nickels ugly, chart.

Most people like Zillow nowadays you say? Lets take a look:

zillow.com 2005-Present


They don't like it that much!

On a Macro front, if you imagine that Internet shopping at Walmart is any proxy for the consumer, take a look at this chart:

walmart.com 2005-Present



The spikes around the Christmas season are cool. If you notice as we have gone through 2007 the traffic is slowing down quite a bit. Maybe nobody uses a computer anymore, maybe not.

In summary, both CFC and the Superfund are trying to buy time. The time they think is needed to be bought is a pure Economic Disconnect from what is going on and will happen to the housing market. Keep this in mind as we go forward into the 4th quarter and the banks come out with another round of "visits to the confessional" as its called on Calculated Risk. Recurring losses on mortgages related assets will continue, and the resultant pressure on banks and lenders will become extreme.

Have a good night.