Tuesday, May 12, 2009

Links 05/12/2009

How the Bailouts Screw Smaller Banks – The Big Picture

Option To Shut Down Fannie, Freddie Discussed By OMB – Mish

State proposal could borrow millions from cities – The Contra Costa Times

Last week, the state's Department of Finance informed cities of its proposal to borrow as much as 8 percent of local governments' property tax revenues — giving the state an extra $2 billion. The cities could in turn borrow the money from the private sector, the proposal suggests, but city leaders scoff at the notion.

The plan would affect cities, counties, towns and some other local districts. Under a ballot measure passed in 2004, the state would be required to repay the money in three years with interest.

The 8 percent loss would come as local agencies are already cutting police, public works, parks and other services.

Toilet snake attack: urban legend comes true? – Reuters

"As soon as he sat down, he suddenly felt a knife-like pain and reacted instinctively by standing up," the China Times said. "When he looked down, he saw the big snake."

Credit Default Swaps Holders Likely to Force GM into Bankruptcy – Naked Capitalism

Five Things for Tuesday, May 12 – Minyanville

Then And Now – Clusterstock

When newspapers fold – Financial Times

Geithner's Revelation (It was all Greenspan’s fault) – The Wall Street Journal

Mr. Geithner: "But I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful."

Mortgage Rates Still Not Allowed to Return to Normal – Minyanville

Keeping mortgage rates low has been a cornerstone of Washington's efforts to jump start the flagging housing market. But with rates at the highest level since April, the "smart money" is betting the Fed may return to the Treasury market en masse.

Paradoxically, even as the Fed tries to keep interest rates low -- which are rising in part due to the expectation that higher prices loom in the years ahead -- its actions increase the likelihood of future inflation. Running its printing presses around the clock has consequences, even if Fed officials are loathe to admit it.

NYTimes and CNN get facts right - story wrong – Foreclosure Truth

I do think prices are where they should be in Sacramento. The median home price is about 25% higher than 2000, but so are median wages, putting prices right where they should be on the historic trend line. This new found affordability has enabled new home buyers and investors to re-enter the market and as a result sales volumes are great.

But these aren't normal times. Between 2000 and today Sacramento's median price has gone from $135k to $394k and back to $169k - a fall of 65%. And in the wake of that fall we've left 30 percent of homeowners with a mortgage in Califorina, and likely a far higher percent in Sacramento, under water in their homes.

It will take years to clean up the negative equity that the housing bubble left behind - in fact despite all the news about the high number of foreclosures we have barely scratched the surface to date. To suggest that prices are about to rebound, or point to this as a sign of economic recovery completely fails to grasp the gravity of the situation still faced by millions of homeowners around the nation who are stuck upside down in a prison of debt. With consumer spending responsible for 65% of GDP, you simply can't have 30 percent of CA, and 20 percent of US, homeowners with a mortgage under water and have a healthy economy.

That does not mean I think we are in for another big fall in home prices. Although over-correction is historically the norm, I think it is possible we are finding a healthy bottom as long as unemployment and interest rates don't get significantly worse. I just simply can't see any real "rebound" or "recovery" in home prices for years to come in light of the signficant negative equity problem that remains. Not to mention the fact that prices shouldn't be higher as we've only just now returned to sustainably afforable price levels absent the toxic loans that got us here in the first place.

Finally, both stories pointed to this as perhaps a sign of things to come for the rest of the nation. Given the 65% drop in the median price before possibly finding a bottom, let's hope not.

Temporary Affordability and the Third Foreclosure Wave – Irvine Housing Blog

The first wave of the foreclosure crisis was subprime. That wave has crested, and its devastation is nearly done.

The second wave that is building now is caused by the deteriorating economy and ARM mortgage recasts…

The third wave will come when everyone still clinging to their adjustable rate mortgage is wiped out by higher interest rates….

Foreclosure Firestorm Ahead? – CNBC Realty Check with Diana Olick

Mark Hanson of the Field Check Group, who works with ForeclosureRadar.com, writes, “there is a Pigzilla the size of a freight train in the python and it has worked its way to the lower intestines.” Hanson claims that foreclosures did not surge in April because the banks simply didn’t have the capacity to process all the distressed loans after all the moratoria had caused a backlog. Specifically, he points to Chase and its WaMu loans.

Beginning on May 4th the properties taken to foreclosure in CA surged. For the past few months, WaMu had been on near full foreclosure moratorium. As of May 7th -- only 5 calendar days into the month -- WaMu already has 10% MORE foreclosure-related REO’s than in all of April. At this run rate, WaMu will have a record foreclosure month of 3300 foreclosures in CA alone or 7000 nationally worth approximately $2.5 billion.

Even scarier - Chase tends to be a leading indicator to what other large bank/servicers do.