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Another Fin. Reg. Failure
The following graph is derived from data in Fannie Mae’s most recent
monthly report. It compares the default rate experienced by Fannie on
its book of conforming loans to the default rate on “enhanced” loans.
The enhanced default rate is 4Xs higher than the regular default rate.
Enhanced loans have performed very poorly over time.
When a Fannie loan goes bust there are many economic losers including:
-The borrower will likely lose the property and suffer a variety of
losses.
-The lender (Fannie) will lose money.
-The taxpayers pay for all of the losses at Fannie.
-The process of foreclosure causes RE comps to fall and results in
devaluation of values in communities, towns, cities, states and
ultimately the whole country.
-As RE values decline so does the tax base of municipalities. This
adds pressure on state and local government's finances. The response is
to cut expenses. Very often these cuts come from school budgets. Exactly
the worst place for cuts to come from if a country was trying to stay
competitive in a global world.
The collateral damage of defaults is much larger than the loss incurred
by the lender. It cuts across society and the economy. Our country
desperately needs policies that reduce the cycle of default. Until the
default rates return to the historical mean there can be little hope of a
sustained economic recovery. Our private financial institutions will
continue to be suspect. The process of the FDIC closing banks every
Friday will not stop. The public lenders, Fannie, Freddie and FHA will
continue to run up big losses. It will go on for years. The collateral
damage will cripple towns, cities and states. As RE values decline
individual wealth will go down and with it will go consumption.
For me the most remarkable thing about this is that the Fin. Reg.
proposals do not even mention the mortgage insurance (MI) industry. The
proposed new rules take a shot at re-regulating the banks, it provides
some protection to consumers from predatory lending, it sort of
addresses concerns regarding derivatives. But it does not touch the MI
providers. How could that be possible?
There are (at least) two reasons for the carve out of MI in the Fin.
Reg.
-MICA, the industry spokesman and lobby was successful in keeping the MI
companies out of the legislation. A job well done by MICA on behalf of
its members.
-There is a belief in Washington that our RE market and therefore our
economy cannot succeed unless credit is available for financing 95%+ of
the cost of a home. FHA, the government owned PMI provider, continues to
provide 96.5% LTV financing. They have admitted that they are suffering
big losses as a result. FHA will be forced to reduce this activity.
There is no stomach in D.C. for another bailout. Therefore there must be
a private sector MI to take up the slack when FHA is forced to change
its ways. As a result the private PMI providers were excluded from Fin.
Reg.
Before the May meltdown the PMI provider’s stock prices were all on a
tear. The future for the PMI providers may look bright to some. But the
idea of creating high-risk mortgages that by definition have a high
default rate makes no sense. The lobbyist, MICA, and their MI members
are winners. Everyone else will be the loser. Fin.Reg. is a joke.
NOTES:
Who is one of the biggest
players in the PMI market? AIG of course. We are protecting AIG.
What in the world are we thinking of?
The feelings are different over at AIG
however.
however.
100%
financing is like a drug. Once your hooked it's hard to stop. Fannie
can't quit. They are still making 100%+ loans to move their REO:
financing is like a drug. Once your hooked it's hard to stop. Fannie
can't quit. They are still making 100%+ loans to move their REO:
»
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Mi companies shares are rising for tow reasons, one silly and the other sinister.
The markets caps are tiny compared to the assets that the respective Boards of Directors control. At TGIC for example, market cap is $5 million, while assets controlled are $900 million.
Some believe that as an OTM perpetual call option on housing recovery the companies are attractively priced: others have figured out that controlling which claims are honored is well worth owning worthless shares.
Well, the way I figure it they have three choices, They could:
a. Fix the underlying problems with the economy and start growing real wealth again...
b. Do nothing and let the economy reset down to it's natural, unstimulated, unmanipulated base level...
c. Try to restart the growth in paper wealth again.
The first choice is out -- that would require a complete re-examination of the so-called free trade regime we've been "enjoying" for the past few decades. Too many egos and too many fortunes are built of the current system for that to happen.
The second choice would cost many politicians their jobs, so wave goodbye to that one.
That leaves the third choice -- Groundhog's Day. Patch up a few holes and try to reinflate... maybe people will start spending borrowed money again. It is their plan for us to relive the 00's over and over again. That is the solution that poses the fewest problems for them... what it does to the rest us (and our future) is secondary.
"cuts come from school budgets. Exactly the worst place for cuts to come from..."
Please. The children would be so much farther ahead if all goobermint schools were closed and the parasite "teachers" and their bloody union can go to hell.
Ok, we know the problem, and have known for quite a while.
Solutions? Anyone? (...and no I will not do the Bueller crap.)
I hate to absolve all of us little people of anything we can do---but (in my opinion)--we can do nothing about this situation. It does not matter whom we elect to any office, they will pursue the same dead end agenda--unless they are a Libertarian or something like that of course. What we can do is get ready--while we cannot do anything about what is happening-we can prepare for what will happen. Get extra food/water(purification) and be prepared to guard yourself and your family. You will at least be one up on all of the mis-lead people who took out the failing mortgages. Bottom line is get ready.
Austerity Measures!
"O" Wait! that's what got us here?! Shit! Ummmmmmm???
How about, and I am just spit balling here!
We stop giving tax breaks to Companies who send jobs out of America? No more outsourcing Tax Breaks?
How about we start producing something? other than Service Jobs? How about we stop undermining our own economic foundation?
How about we out law growing market share thru legislation? How about we out law Lobbying beyond the $10k dollar amount from anyone, including Corporations?
How about not only money limits but terms limits as well?
Heres why...
Sen. Chris Dodd is retiring at the end of the 111th Congress
Career Fundraising 1989 - 2010
Total Receipts: $48,528,008
(or $2.3 million a year not including his pay check, which is only $100k(ish) a year... so we the people pay him $100k and his master(s) pay him 23 times that amount ($2.3 Million), annually... but Lobbying is Legal, but bribery isn’t? Why can’t I lobby my way out of a speeding ticket? O yeah! I can by supporting the Judge (for re-election), but not the Police Officer... so the further up the ladder you go the more the Bribery is ok, just not for the common folks... it’s to, too difficult for us to get our head around, we ain’t that smart to be able to understand such complex issues.)
1989 - 2010
Total Spent: $48,570,877
Debts: $335,361
Last Report: Wednesday, March 31, 2010
http://www.opensecrets.org/politicians/summary.php?cid=N00000581&cycle=Career
Top 5 Contributors, 1989 – 2010 Contributor *Total* “Individuals” (PACs)
Citigroup Inc *$427,694* “$381,694” ($46,000)
United Technologies *$387,900* “$352,700” ($35,200)
Bear Stearns *$347,350* “$337,350” ($10,000)
ActBlue *$303,150* “$303,150” ($0)
American International Group *$285,238* “$242,618” ($42,620)
&........
Top 5 Industries, 1989 – 2010 Industry *Total* “Individuals” (PACs)
Securities & Investment *$6,221,307* “$5,455,317” ($765,990)
Lawyers/Law Firms *$3,218,475* “$2,761,631” ($456,844)
Insurance *$2,431,646* “$1,395,775” ($1,035,871)
Real Estate *$2,041,073* “$1,719,067” ($322,006)
Commercial Banks *$1,333,463* “$918,044” ($415,419)
The lobby pays more than his pay check... it is the money used to buy ad time in his home state so that he can smile pretty and dance for the dumbass locals who don't know any better... This picture is repeated, over and over again in our Federal Government. These people are bought and paid for whores; they are willing to do whatever is needed to have the ability to raise Cash so that they can stay in office. No matter who gets Voted in, the Lobby will get to them because at some point the other guy running against them will use Lobby monies for Air Time and that means the other guy wins. Everyone is doing it, how can someone not...
Best question? How can a real person, not a Lobby Money Whore... win against a Money Machine? A real person cannot. Money equals the Air Time needed, it equals the Bought and Paid for Dirt on the other guy and it equals pay offs or whatever is needed to keep the scumbag in the race.
Until the lobby monies are stopped… nothing will change.
Your Vote, for whomever does not fund the campaign needs of your elected official.
An income 23 times larger than your pay check will affect how you think and act and dare I say vote.
JW your posts always are well researched and have multiple links to support. Why is there no mention of the largest contributer, by total dollars given at the national level, Unions.
Did you miss the millions that the SEIU, AFL-CIO, etc. have made to politicians?
SEIU spent almost 60 million getting their butt boy barry into the WH.
Yep.
Bravo - well done JW! about sums it up but the likelihood of what you're proposing is......?
The solution is to let the housing market fall and to stop trying to prop it up with more taxpayer backstopped mortgages. The reason these near to no equity loans are being produced is to supposedly stabilize home prices. But it won't work.
So the housing market has to run its natural course and prices must correct until they are done correcting (we know there is a bottom, we just don't know where it is). Artificial means are just extend and pretend, as you well know, Rocky.
It's the same with all debt. It must be cleansed out of the system so we can begin anew. Debt bubbles of this magnitude (consumer, corporate, soveriegn) must eventually burst. Our situation right now due to the printing press is like an old balloon that has lost some air already. If you stick a pin in it, it doesn't pop....it just slowly leaks out the air until it is no more.
It will happen anyway. It is not a question of if, but when.
December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 - 2007.
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
HOME is the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-income households. Each year it allocates approximately $2 billion among the States and hundreds of localities nationwide. The program was designed to reinforce several important values and principles of community development:
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/
Which was part of: HOME is authorized under Title II of the Cranston-Gonzalez National Affordable Housing Act, as amended. Program regulations are at 24 CFR Part 92.
Which Daddy Bush pushed thru...
Now, after pumping all of these dollars in... Bush cut funding, never mine the shit head idiot dems v. reps...
When Bush pumped the housing market, with the magic, un-written Federal backstop clause and then cut the funding... all of that 50 to 1 leverage took on a new sheen... 50 to 1 leverage for an ongoing Federal Program, or as I would call it... The big boys feeding from the public trough of tax dollars... was safe, safe enough that how many absolute return funds bought into the rated, magic Federal funded and back stopped debt machine / vehicles? LOTS!
But, when the Federal monies where cut... and the magic backstop was found to be a lie... the domino's fell, one after another... Goldman, being smarter than the rest bought shorts and insurance? how many different ways did Goldman profit from the failure, per deal... in the plainest of terms... for every one dollar in failed debt Goldman earned $2 dollars? Short + Swaps? I am guessing there just for the fun of it... sorry.
But the failure was brought on by Bush pumping and then de-stabilizing the Federal dollars (really tax payer dollars) that where assumed to be safe by Bear, Lehman and so on...
Bruce Krasting has a "W" Sticker on his car! Thanks Bruce!
Bruce Krasting has a "W" Sticker on his car! Thanks Bruce!
For JW n FL
http://bit.ly/98tVtC
(about 23 seconds in)
Anything Beanmush is proud of must be a national treasure!
Excellent, as always Bruce. Continuing on your last post when we discussed that 10% down and 10% PMI used to be the norm--just how are the old mortgage insurers surviving in today's market?
Let's visit MGIC: Slogan, We're better than FHA since you can refi your way out of PMI (and get our risk off the table) faster! http://www.mgic.com/education/mi_better_option.html
I said it before...wave 2 down in housing is coming soon to a neighborhood near you--unless you live near a shales project in PA. In that case, you can buy high now due to the onslaught of Chesapeakers, etc. and watch your house dwindle to nothing in 7 years after the water table and air pollution make the area unlivable. Google Texas shales pollution.
Another cheery Sunday morning! Now back to our regularly scheduled anger.
Plus $13 trillion n change !
Well done, Mr. Krasting.
Thanks, good stuff. I do think this speaks to the need to have regulater with broad authority. Seems PMIers are just another not-so-implicitly govt guaranteed govt/private GSE-like Frankenstein. Private profits, we taxpayers pay for losses, yuk. Only people that can be for this are corrupt politicians and the businesses that benefit, the other 99.99 percent of us..bend over.
Default all of housing, crash the banks, the insurers and get it over with...
There is a reason we had a term "moral hazard"...because this govt corruption is a hazard to our democracy. Don't tell me there weren't some smart congressional staffers, regulators, industry whistleblowers pointing this same problem out to legislators...only reason it is not addressed...corruption.
I want my government back, now.
"We"???, Kemo Sabe???
How about a big fat THEY, instead?
It's your money, not theirs, so it's actually you, I guess.