NOTE: Gawains left a comment last post which noted that Freddie Mac offers a 2 year Home Warranty. Gawains, how does that work? What is covered? How is it paid for? I would love to have details on that item.
Isolated Case of Fraud
Look, I am 100% sure some lawyered up market savvy reader/writer can explain away the following clear case of lying, but so did OJ' s defense team so there is that.
Zero Hedge has done some work on the newly released Lehman Failure Report and finds "Repo 105" to be about what you would expect:
The "Repo 105" Scam: How Lehman Fooled Everyone (Including Allegedly Dick Fuld) And How Other Banks Are Likely Doing This Right Now
The post is a heavy duty one and I think it worth your time to check it out. Short version; accounting gimmicks to massage capital ratios gone wild. I am sure they were and still are the ONLY ones doing this. You Betcha!
Cheerleaders and Pom Poms
I had a post in mind for tonight and when I was making the rounds I saw that I was scooped by Mark over at The Illusion of Prosperity blog. While great minds do indeed think alike, I cannot lay claim to inventing one of the most successful computer games ever sold! Here is the post:
Credit Cards Being Paid Off?
Not really.
NEW YORK — With unemployment high and personal wealth diminished, how was it that strapped consumers were paying down their credit card debt last year? It turns out they probably weren't.
The bulk of 2009's drop in credit card debt instead came because banks were forced to write off loans consumers failed to pay, according to an analysis of Federal Reserve data.
Most headlines just ran the screamer "CREDIT CARD DEBT FALLS", but of course it helps to did a little deeper.
I was thinking along these lines as it seemed today I was inundated with cheers and cheerleading about how great a recovery is happening right now across all things everywhere all at once. After reading a few articles I was puzzled how headlines did not match up with the substance of the piece. The above catch was one example, but there were plenty of others.
From Calculated Risk:
Flow of Funds Report: Mortgage Debt Declines by $53 Billion in Q4
I picked this one because CR is too smart to not know why this is, but many others jumped to the wrong conclusion very quickly. Mortgage debt written off is not quite the same thing as paid off, like in the above credit card example. From the same CR post comes this amazing stat that is pure scary based on this graph:
The scary part:
Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 43.6% equity.That is not good in case you were wondering.
Some more headline cheerleading that falls apart when reading the actual story? Next up is this one from Yahoo Finance:
Slowly, Americans are regaining their lost wealth
Sounds good. Let's dig in:
WASHINGTON (AP) -- Americans are recovering their shrunken wealth -- gradually. Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight. And it was less than in the previous two quarters.Not exactly a great opening paragraph. Plenty of qualifiers. Why mess with a great headline though? More story:
Net worth had risen by a more robust 4.5 percent in the second quarter of 2009 and an even faster 5.5 percent in the third quarter. Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.Stocks are not the primary vehicle of wealth for most households, homes are. The housing ATM was the engine that powered consumption to bubble highs, not stocks. See the Technology Bust for an example, but short version: the tech bust did not bother consumer spending or home equity withdrawals at all.
Even with the gain, Americans' net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion. That illustrates Americans' vast loss of wealth from the worst downturn since the 1930s.
Growth in stock portfolios delivered the biggest lift to net worth in the October-to-December period. The value of stocks rose by nearly 4 percent to $7.7 trillion. Higher home prices helped a bit. The value of real-estate holdings edged up 0.2 percent.
An illustration again from this CR post:
The 2000 Tech Bust made a slight dip but the uptrend in extracting any equity one could was in full effect.
CR notes the following:
Equity extraction was very important in increasing consumer spending during the housing bubble and I don't expect the Home ATM to be reopened any time soon. So any significant increase in consumer spending will come from income growth or a lower saving rate, not borrowing.Income growth? Are we not in a deflationary environment? I say consumer spending may be facing headwinds, not tailwinds.
The cheerleader pom poms right now are limited to:
- A rising stock market
- Lower continued job losses
- Census hiring sure to feed headline hyperventilating over the next few months on jobs
Stock market gains do not have the same bang as other asset classes for the regular joe, but they do help. I know several people that did the old 401k loan thing to buy a home at bubble peaks and they get the full prize of:
- Paying back themselves the foll 401k loan amount after seeing the 401k drop 50% or more
- Being underwater on their home
I sure hope they get some income growth!
A final word about housing. Home prices will not return to the last peak for at least 10 years. That's TEN years. That is the minimum and it may well be longer. When thinking about the home plans floating around right now, ask if any are really workable over that time span. If I am wrong and homes reach the past peak in 5 years or less, it is likely we have had a currency issue and that is far worse.
Ok, one more housing nugget, found over at Housing Doom. When asked why I am so negative I like that I can always find a story that backs me up 100%. So the home market has bottomed and now is the time to dive in and go nuts? What about this?:
Politics, shaky economy create no rush to restructure Fannie and Freddie
Key quote:
Some analysts say it's an inopportune time to wind down the companies -- or even hint at major change -- while the housing market and economy remain in bad shape.Nobody say 'Boo' then.
"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."
What Kind of News do You Want?
I loved this article from Ultimi Barbarorum blog:
Econobloggers need their crisis back
A well written piece that describes some reasons for the loss of interest in econo blogs after the big panic last year. Worth a read.
Along these lines I have a new poll up which asks what kind of news/stories/content you would like to see now that the recovery is in full swing and all is well in America. Please vote!
Have a good night.
Well, I can't say anything negative about Fannie and Freddie, as they are both clients of mine and the people I actually work with are really very good.
ReplyDeleteHowever, I will say that the GSEs are horribly run, to the point of bankruptcy. And its costing the taxpayers hundred of millions.
As far as Freddie's 2-year warranty goes, this is how it works. I get a package for each listing. In that package there are a door hanger, a window sign, a counter prop-up, fliers, and stickers for all electrical appliances. The stove/range, microwave, dishwasher (assuming there are some, and usually Freddie will install new ones if not), the a/c unit, the water heater, and the circuit breaker are all covered for two years after purchase. In the event of failure, Freddie will replace the faulty appliance at no charge.
I'm actually a Freddie guy. It is really the best company to buy a house from. Freddie always makes repairs, installs new carpet and fresh paint and new appliances. So these houses are ready to move in.
Also, Freddie will not agree to any offer over list price. In other words, rolling over closing costs is out of the question. Freddie will not sell a house with negative equity. I respect that.
Wish I could say the same about the other companies I work with. Fannie is pretty good, at least she offers special financing. But AHMSI is rapidly becoming a joke.
We've got several houses listed with AHMSI. One didn't sell, because it was priced too high, then went under auction. It didn't sell at auction (AHMSI wouldn't agree to the high bid), so now it's being moved to another realtor. At the same time, another property, which didn't sell on the open market or at auction, has been assigned to us. We declined it, as it would only be a waste of time.
Even worse, I've got two houses listed by AHMSI that have agreed upon contracts, pending investor and mortgage insurance approval. Well, it's been over two weeks for one. On the other, I got the final addendum today, sent it to the selling realtor, and got a response that her buyer had lost paitence and was withdrawing her offer.
Great. I list this house. I market and advertise it. I get a buyer who makes a very reasonable cash offer. And the company takes so long to respond that the deal is dead the day it is agreed to!
That's okay, I've got another buyer who was waiting to know how this deal turned out, and is willing to make a better offer than the one that died.
This is real estate. This is the repo market. And this is what people do not understand. You're dealing with a cooperation. There's an asset manager, a regional manager, a senior manager, a mortgage insurance compnay, and a pool of investers. All of them have to agree and sign off on a deal. This takes a lot of time, since you're dealing with dozens of people. It's not like one buyer and one seller. It's one buyer and dozens of sellers. Try to negotiate that deal.
I don't get paid unless I make a deal and close the sale. All the money I spend on gas, marketing, advertising, and what not, comes out of my pocket. Not to mention licensing fees, board membership, MLS dues. It costs me about $2000/year just to maintain my license. And that doesn't include gas and milegae, which thankfully is all tax deductable.
So this whole scene is surreal to me. I make a lot of money, but I spend a lot of money to do so. I'm dealing with companies which have houses on the market for sale that agree to a reasonable offer but not in a reasonable amount of time.
It's insane.
Wow Gawains!
ReplyDeleteThat was a great post. Thanks for the details and the inside story. At least the FRE/FNM homes are worth getting into, score one fro the government, HA!
Hey gyc - nice post tonight! I wanted to make sure you saw my response to your "ouch" comment:
ReplyDeleteHey gyc: My comment wasn't intended as an "ouch" rebuttal in any way. Sorry if it came across that way. I was in a hurry to post a reply because I'm trying to get comments posted as quickly as I can and I had to run out to a meeting.
The only reason I know some of the details and facts that I do is because I don't do much outside of work - at least during the week - and I've focused on this sector almost exclusively for nearly 9 years now. You pick up a lot of stuff - good and garbage along the way.
What I will say is that every single person who has been around for the duration of this bull market, and has followed the work of GATA, will tell you that the U.S. GOvt has largely dumped/leased its gold as tool to manipulate the gold price. Several guys have done forensic work which underlies this view. Most of it is buried on the GATA website.
As for the idea that "if it were true the word would have leaked" concept, let me analogize this to the famous quote from Kaiser Soze in "The Usual Suspects:" "The Devil's greatest trick is to make you think he doesn't exist."
If you start pouring over the work GATA has done, and you start reading Midas every night, you find the Devil in the details.
Dave,
ReplyDeleteno issue at all! I will leave a response on your site but no worries; I am not as well read as I would like, day job and all!
Why do I know how that poll is gonna end up? Cheerleaders woth no pom poms nice.
ReplyDeleteHey! Happy Birthday 1 hour early!!
ReplyDeleteHere's a great example of the Government engaging in activity that never leaked out, courtesy of Jesse: word of the Manhattan project never leaked out and think about all of the people across the country that were involved in that. I know for a fact that underneath the field house at the University of Chicago, beneath the very squash courts I played on almost every day for 2 years, is a laboratory/facility that was used for one "leg" of building The Bomb
Happy Birthday, GYC. I recommend enjoying a nice dinner and a fine bottle of wine.
ReplyDeleteThat's what I'm doing for my birthday this year, but about six weeks early. I'm meeting my Reality Football blogging coconspirator, the Emperor, in Austin at the beginning of April. We're staying at the famous, luxurious, legendary, and historic Driskill Hotel downtown. It's rated as one of the top five hotels in the country, and the chef has won gold medals in the culinary arts. We'll be having the 9-course chef's tasting dinner with the sommelier's wine pairings. Very expensive. But since it will likely be the only present I get, I'm going to indulge myself, even though my birthday isn't until the end of May.
Anyway, I ordered a copy of Yves Smith's Econned. Should arrive any day now. I'll let you know how it reads.
I also ordered a copy of Hayek's The Road to Serfdom, which I've never read. I have read excerpts from it in various articles, and what struck me was that Hayek's approach to economics took a complex system view. In other words, he was a dynamic thinker, whereas Keynes was a static thinker. So it should be interesting to compare his work with Yves Smith's.
Happy Birthday GYSC!
ReplyDeleteGawains,
I know next to nothing about real estate but your 6:02 PM comment on the subject was interesting even to a lay person such as myself.
Yes, well, thanks for the compliment. I appreciate it, really. But it would have been a better post if I hadn't misspelled corporation, as there is very little cooperation involved with these guys.
ReplyDeleteOn a side note, I don't know if any of you guys are keeping track of what's going on in Mexico, but these drug cartels are becoming increasingly more and more violent. Three people were killed in shootings in Reynosa yesterday, and northern Mexico is rapidly becoming a free fire zone.
That's just across the border from where I am, and it's also why I do not go to Mexico for any reason anymore. A bullet does not care. Back when I was a teenager, we all used to go to Mexico, for the beaches and the bars that stayed open until 4:00 AM. But starting in the 80s, it just became too dangerous to travel there.
This is of some concern to me, because the economy of this area is intricately tied with Mexico. I remember the early 80s, shortly after my mother bought the company. When the peso devalued, it literally destroyed the economy. There were 44,000 foreclosures in the first month! Within 90 days, 1/3 of the real estate companies went bankrupt and disappeared. It was 20 years before business investment and growth returned.
The only reason our company survived, and in fact profitted, was because my mother was one of the few realtors who worked with repossessed homes. So we're very well positioned for the current market, which is inundated with repos, as we're the only company with 30 years experience in selling them.
I've only been in this business for the last couple of years, since my father died. But my mother, she's the real expert. It's amazing the knowledge and expertise she has. She can walk through a house and tell you what it will sell for, and be accurate to within less than 5% plus or minus. It's uncanny.
Still, this border violence is deeply troubling. Lots of Mexican nationals are buying houses here. These are not vacation homes, but sanctuaries. These people intend to flee as soon as Mexico descends into anarchy, if not before.
What they intend to do here, as far as jobs go, at that point is beyond me. So much of business here is related to cross border traffic. If Mexico collapses, so too will this area.
For example, Panasonic recently closed its corporate headquarters in Tennessee and relocated to McAllen. This because they're transferring their manufacturing to the maquiladoras in Reynosa. They might want to rethink that strategy, because as Mexico goes so goes all of South Texas.
For a Friday night music request, please play "Rainy Days and Mondays" by The Carpenters. Where I am it won't quit raining.
ReplyDeleteAll,
ReplyDeleteLikely to be a Friday night post as I have no plans for tonight. Tomorrow night is the night out.
Gawains,
again, thanks for the great inside info. Way up here in Mass I had no idea how integrated things were o the Txas border with Mexcio. Wild stuff.