Friday, March 7, 2008

Can One Simply Borrow Forever? We May Find Out

The 20 hours straight of rain that is coming has that Erythmics song "Here comes the rain" stuck in my head. Today was a busy day with news and market swings. I can always tell something is afoot as my site gets way more hits than usual, as do other blogger sites.

Jobs Report No Longer Useful In Any Way
Readers of this blog already know that the jobs numbers that are published are not viewed as a useful data piece by Getyourselfconnected. The massive job additions made by the birth/death model are way to optimistic when the job markets turn (and in turn may be too pessimistic when jobs change to the upside). I will spend some time on the jobs number today, as another failing of the calculation was on prominent display today.

The headline number was a loss last month of 63,000 jobs. This is the second job loss print in a row, and previous numbers were revised lower as well. What was the glaring problem was that with job losses getting worse, the unemployment rate itself went down .1%! While a 0.1% change is of no significance one way or the other, the key factor to know is that over 600,000 people gave up and "left" the workforce! So because those folks could not find work and gave up looking, they do not count for the unemployment number. Why stop there? Why not just leave all those that are not working out of the numbers and we can have 0% unemployment? Maybe next month the method of computation will reflect that change!

The other issue with the jobs report is that the only jobs being created over the last year are leisure industry jobs (whats that?) and government jobs. The last thing we ever need is more government jobs! This is yet another way to manipulate the numbers, as the government could hire as many as needed to print a good number. That would be a waste of money you say? Exactly why it is probably done, this is the government.

Can One Simply Borrow Forever? We May Find Out
By now we all know the issues facing the housing and credit markets. We have seen all kinds of help programs and proposed bailouts. I have found the perfect plan that fully epitomises the mindset and sickness that is the debt laden, over leveraged consumer economy we have. Having problems paying your mortgage? Behind on payments? Saddled with too much debt that you cannot service? How about a LOAN to get caught up on your payments, and then you can repay that loan with interest as well! Think I am kidding? I submit from

HomeSaver Advance is the Latest Program to Assist Delinquent Homeowners
HomeSaver provides funds to pay past due balances of principal, interest, taxes, insurance (PITI), and up to six months (in some cases 12 months) of home owner association (HOA) fees. Escrow advances and advances for (servicers') attorney fees can also be covered. Late fees and some other costs are not eligible.
The advance requires the borrower to sign a promissory note for the funds, payable over 15 years at a fixed interest rate of 5 percent. No payments are required for the first six months nor does interest accrue during that period so the advance is amortized over 14.5 years.
There is a $600 workout fee paid to the servicer. We assume this is a cost to the borrower.
Delinquent home-owners can borrow the lesser of $15,000 or 15 percent of the original unpaid balance and the money is applied directly to the arrearage. The homeowner never receives the money in hand.
Mike Quinn, Senior Vice President for Single-Family Credit Risk Management said in a corporation press release that "HomeSaver Advance will help Fannie Mae streamline its loss mitigation efforts and offer loan servicers a new way to cope with a delinquent loan. Our research shows that most borrowers become delinquent because of a temporary life event or hardship. This loan can offer these borrowers another alternative, and help prevent a temporary setback from becoming a foreclosure."
The corporation is undertaking the program in anticipation that it will reduce the number of delinquent loans it purchases from its mortgage-backed securities trusts and the fair value losses it would suffer in connection with these purchases.
HomeSaver Advance should be available to all Fannie Mae Servicers by April 15, 2008.

Full Link:

My first problem with this program is even plainly stated as a purpose of the plan "The corporation is undertaking the program in anticipation that it will reduce the number of delinquent loans it purchases from its mortgage-backed securities trusts and the fair value losses it would suffer in connection with these purchases"
This program is a blatant attempt to reset bad loans to look good so the losses do not have to be written down or accounted for in real time. In effect this plan would buy anywhere from 6 months to a year before the loans would have to start the long slow foreclosure process. Even at this stage of the bust, there are still tricks being attempted to mask losses. Too funny.

My main problem with the plan is the very plan itself. In a situation where a borrower has too much debt to service and is falling behind, the answer is to give them MORE DEBT through another loan vehicle and tack that loan (with interest) onto the debt the borrower could not pay to start with? I know, maybe I am missing something. And they can drop the pretense that this program is for people with medical issues, divorce, or other short term problems. You know exactly who this loan is meant for.

The plan makes perfect sense if you think like the number crunchers that sit at a desk looking at charts and shuffling paperwork to get a desired result. The result desired here is to make a troubled loan superficially current through the magic of credit issuance. This type of thinking does not stop to ask philosophical questions like "Is more debt a good idea?", or "Is it in the best interest of the borrower to stick with this now larger loan?".

And this is exactly the problem the FED is having right now. The FED and others see a consumer spent out, stretched to the breaking point due to overbearing debt service. Because the US economy is built on credit creation and debt, they only see a solution that INCREASES credit and debt. They simply cannot step back and see that no more can be taken on.

At some point this will become clear. When the FED rate hits 1% this summer and there are still no takers for mortgages, maybe some original thinking can be done. I am hopeful, but not that hopeful!

Comic Relief and Rock Blogging
It seems the LOL Cat pictures are very popular. I love the site that makes them (listed as hilarious pictures on the blogroll). There are few free and worksafe sites out there, and that one is very good. Here are a few from the past 2 weeks that I like:

I hate it when someone flushes when I am in the shower!
funny pictures
Enter the ICHC online Poker Cats Contest!

A time traveller must be careful not to cause a paradox!
Humorous Pictures
Enter the ICHC online Poker Cats Contest!

Do Not Look Behind You!
funny pictures
Enter the ICHC online Poker Cats Contest!

Now for the MUSIC!

Billy Idol with "Eyes without a Face". Great lyrics, thundering baseline, and I mean its Billy Idol!

Yes she is totally insane and a bit scary, but Courtney Love can kick butt with her ripping band called Hole. Check out "Violent":

Always been a big Metallica fan. I remember waiting all night to see their forst ever video on MTV way back when. The song "One" with its simply stunning drum work made a lasting impression on many:

Before Prince went bonkers, he was the most promising guitarist is a long time. "Lets Go Crazy" should set you up for a Friday night!:

Have a good night!


watchtower said...

First concert I'd ever seen...Prince and the Revolution, in 1984 or 85 (I forget). Drove to the big city (in my 1972 Firebird) and took my date with me.

I can't help it, I just dig those cat pictures.

Anonymous said...

"Can One Simply Borrow Forever?"

I think they tried that and the answer looks like no.