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Because 105% LTV On Depreciating Property Wasn’t Good Enough for the US Taxpayer…
FHFA authorizes Fannie Mae and Freddie Mac to raise LTV limits to 125%: HUD Press Release
- Deteriorating consumer finance conditions have made many homeowners fall short of previous HUD stimulus plans
How Big A Bubble Can We Blow with Taxpayer Monies???
- Homeowners can only qualify if they are current on their mortgage
payments, severely effecting the “effectiveness” of the program - The FHA continues to swallow up the mortgage origination market,
which is no surprise considering the wild, bubblicious loan terms that
they are offering
Of course, bubblicious initiatives such as this have allowed banks to
show a mild increase in credit quality in their portfolios, which they
have summarily taken full advantage of by releasing loss reserves and
reducing loss provisions – thus increasing accounting profits and
boosting bonuses.
However the concern remains, as banks are taking this improvement
very optimistically by reducing their provisioning significantly, with
most banks reporting a substantial decline in their provisions-to-charge
offs ratio. Three banks particularly BofA, JPM and WFI have witnessed a
massive decline in their provisions-to-charge offs ratio in 2Q10 to
84.8%, 58.9% and 49.5%, respectively. from 153.7%, 133.4% and 155.2% in
2Q09.
I know, those guys at BofA and JPM believe that tax payer funded 125%
LTV loans during an ongoing housing depression has absolutely nothing
to do with modest moderation or improvement in consumer metrics, and
once these shenanigans prudent
fiscal programs cease, the consumer will continue to pay all of their
bills promptly and timely as their home values summarily increase while
their employment status looks just rosy! See As I Made Very Clear In March, US Housing Has a Way to Fall and Are the Effects of Unemployment About to Shoot Through the Roof?.
For those who don’t follow me regularly, I went in depth on this topic after JP Morgan’s latest earnings release: After
a Careful Review of JP Morgan’s Earnings Release, I Must Ask – “What
the Hell Are Those Boys Over at JP Morgan Thinking????”
As Excerpted from As I Made Very Clear In March, US Housing Has a Way to Fall:
Trust me, the collateral behind many more mortgages will continue to depreciate materially as government giveaways and bubble blowing for housing fade!
The delinquency and NPA levels drifted
down a bit, but they are still at very high levels. Charge-offs came
down but the reduction in provisions has been quite disproportionate
bringing down the allowance for loan losses. In 2Q10, the gross charge-
offs declined 26.6% (q-o-q) to $6.2 billion (annualized charge off
rate – 3.55%) from $8.4 billion in 1Q10 (annualized charge off rate –
4.74%). But the provisions for loan losses were slashed down 51.7%
(q-o-q) to $3.4 billion (annualized rate – 1.9%) against $7.0 billion
(annualized rate – 3.9%) in 1Q10. Consequently, the allowance for loan
losses declined 6.2% (q-o-q) from $35.8 billion from $38.2 billion in
1Q10. Non performing loans and NPAs declined 5.1% (q-o-q) and 4.5%
(q-o-q) respectively. Thus, the NPLs and NPAs as % of allowance for
loan losses expanded to 45.1% and 50.7%, respectively from 44.6% and
49.8% in 1Q10. Delinquency rates, although moderated a bit, are still
at high levels. Credit card – 30+ day delinquency rate was 4.96% and
the real estate – 30+ day delinquency rate was 6.88%. The 30+ days
delinquency rate for WaMu’s credit impaired portfolio was 27.91%.
While the lower provisioning was
able to beef up the bottom line in this quarter, the same is not
sustainable in the future as JPM cannot afford to reduce its allowance
for loan losses substantially. This is a one shot, blow your wad and go
to sleep deal! There is no margin for error in the future, and one
can only assume that the reason this was done was to pad accounting
earnings and to take advantage of the extremely short term, and
obviously naïve, memory of the financial media and retail/institutional
investor. Given the high charge-off rates and delinquency levels, the
provisioning will probably need to be bolstered again in the not too
distant future.
Listen, even US Economic
Cheerleader and Propaganda-in-Chief Ben Bernanke said it will be
several years before growth and employment resumes. Sooooo…. What the
hell are the boys (and girls) at JP Morgan doing????
The reduced provisioning can help
improve bottom line, but it cannot conceal the weakness in core
operations as reflected in the sagging revenues especially in the
investment banking segment.
It should be obvious to all that this Federal Bubble Blowing will end
up in a bubble popping. What will those over optimistic banks then have
to do? Add back to those provisions, thus dropping profits. It will be
too late for the taxpayer then, since the bonuses will have likely been
long spent.
I will address these bank shenanigans in a post later today, but in
the meantime pro subscribers should peruse the mortgage lose and credit
metrics sheet used for the US bank stress tests, updated for the 2nd
quarter of 2010. The facts are right there for all to see: 
SCAP Assumptions Updated_09082010 Web
The rest of this JPM Q2 review excerpted above can be downloaded by all paying subscribers (click here to subscribe) here: 
JPM 2Q10 review
Subscribers should also review our forensic valuation reports, which
have (thus far) proven to be right on the money in terms of JP Morgan:
- The JP Morgan Professional Level Forensic Report (subscription only)
- The JP Morgan Retail Level Forensic Report (subscription only)
Those that don’t subscribe still have a lot of BoomBustBlog JPM
opinion and analysis to chew on, including a free, condensed (but still
about 15 pages) version of the forensic analysis above. You can find it
below this pretty graphic from “An Unbiased Review of JP Morgan’s Q1 2010 Results Yields Less Roses Than the Maintream Media Presents“…
Yes,
there is a typo in this graphic, it should be Trillion, Not Billon -
for those who query, but this is notional value and not net exposure, I
urge you to read the free analysis that accompanies this pretty picture
below...
- An Independent Look into JP Morgan (subscription content free preview!)
- If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 – JP Morgan
- Is JP Morgan Taking Realistic Marks On Its WaMu Portfolio Purchase? Doubtful!
- Reggie Middleton on JP Morgan’s Q309 results
- Reggie Middleton on JP Morgan’s “Blowout” Q4-09 Results
As Excerpted
- advertisements -
At first I was like this: I got a new house!
Then I was like: I lost my house!
Now I'm like: I got a new house!
I assume tomorrow will be bigger and better than today forever.
Party on!
ALAN GREENSPAN'S ASSET BUBBLE BAND
http://williambanzai7.blogspot.com/2010/09/alan-greenspans-asset-bubble-...
Question about mortgage. I took out a fixed rate mortgage on a vacant parcel at 7.625%. The mort. was sold to Fifth Third about 4 yrs. ago. Ive been trying to refi. but no one will finance vacant land. Then out of the blue, today I received a letter from Fifth Third saying my ARM has been changed from 7.625% to 5.125%. Should I tell them that this is actually a fixed rate mort., or should I just be happy for the reduced rate?
Sounds fishy. Does the letter ask you to sign something, ie modifying your original contract?
You should find out what your original contract says including all the fine print. Sounds like Fifth third thinks it always was an ARM with a front-end teaser rate? Maybe there's a deftly hidden clause allowing the bank to convert it into an ARM?
Sounds very fishy, but almost sounds like they don't know what the loan really is. Maybe they don't have the note? Is MERS the beneficiary on your Deed of Trust?
Could be time for a little bit of reverse bankster ass-rape.
*
Is it any different than what is going on in CRE? Taubman just turned over the Piers at Caesars in Atlantic City to BoA which had a LTV of 250%. Yes, I read your posts about the REITs after reading the article in the Philadelphia Inquirer about Taubman's default. You know who will end up eating that, right?
BTW, thanks for the crash course in REITs. Good stuff. A friend of mine tried to explain these, what he called "zero liability" commercial loans. I thought he was nuts.
Question for anyone, why are Fannie and Freddie still purchasing such a large percentage of mortgages? Speaking with a friend that is a mortgage broker, the pick a pay, ninja, no doc loans are a thing of the past and he said the majority of the loans issued are good loans that people can pay. So why are Fannie and Freddie still purchasing the good mortgage loans?? Why is there no market for these mortgages?
Securitization is basically dead.
No one in their right mind would
touch this mkt. currently. Enter
your gov't. They're the only game
in town. FNM + FRE are losing
vast sums of money as well, but
it's all at taxpayer expense. As
to "why?": The gov't via the banks
feel the need to (attempt to)
prop up the housing mkt. This
makes the banks look better than
the zombies that they really are
with toxic real estate loans still
on the books (mark to market now
mark to myth). We're still in
extend and pretend mode. Look to
Japan to see how this ends... Did
you really want the red pill?
Japan isn't a good example of where we are headed. Japan still is employed in terms of being an net exporter and they have a positive savings rate (though greatly diminished thanks to govt debt).
We have neither while we may be the third or fourth largest exporter in the world our consumption and debt handling have been disasters and while our now positive saving rate is on the up, our total net worth as a collective is under water.
The shortened version is that we are the college kid who spends more than he earns with his part time job is preoccupied with the pie in the sky dream job and degree and has assets that cannot cover his debts.
We are fucked.
BTW I was wondering since I'm a perverse fellow. Would asking the FED to start making credit cards or opening up local branches where I can bank a bad idea?
lol
Because banks aren't stupid, and who in their right mind would accept a 4% return when inflation could end up 10x that when Bernake loses control of his razor blade balancing act between deflation and inflation?
Without Fannie/Freddie, there wouldn't BE a housing market...and Obama et al don't want to take the blame for ruining the housing market. They'll wait and let the GOP take the fall.
This is going to hurt so bad, it's not even funny.
4% doesn't sound too bad if you're a bank and you can borrow at 0% and leverage 20 to 1. There are plenty of people betting that inflation will not be a problem. It sounds terrible if you think the housing market is going to go down another 15% to 20%. I guess this is where the fear lies.
Being able to borrow short-term at zero is not a good reason to lend for 30 years at 4%. Banks are almost that crazy but not quite. The private mortgage market (eg jumbos) is about 5.5%. So the government subsidy is worth about 1.5 pps
If you're using short-term money to lend long-term in this market, you're going to get wiped out as soon as rates rise. That's how the next financial sector crisis hits.
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
That makes sense, thanks.
burned me once......
Bring it on. As a new homeowner I am only too happy to have the Fed backing up home prices. If they want to blow another bubble, let it ride. Now if I was still waiting to buy, I would be pissed and rightfully so.
The new reality is to do your best to position yourself to receive the greatest amount of Govt. largesse. That is the new paradigm.
Great point. Until they need to take the largesse back...at that point, hope you converted it to PMs buried deep in the backyard.
Saxxon - Bubbles always end badly.
Support for a new bubble is tacit
support for the next crash.
There is nothing the gov't can do
to prevent housing prices from mean
reverting (eventually) - all the while
wasting huge amounts of taxpayer money
in the process of attempting to do so.
Nor will there be another
bubble any time soon (in housing,
in the US). Been there, done that!
Must be sarcasm...
your avatar is sooo on the money. /giggle/
now where oh where is my pin! /?pun?/ whatever.
“Insanity: doing the same thing over and over again
and expecting different results.” – Albert Einstein
http://moneywatch.bnet.com/saving-money/blog/home-equity/mortgage-refina...
http://www.fhfa.gov/webfiles/13495/125_LTV_release_and_fact_sheet_7_01_0...
HELOC? Can you still get one of those?
Got an offer in the mail for one just the other day....at a variable rate. hahahahahahahahaha
Sure you can.
Actually, beware, the doctorhousingbubble article has wrong info that banks have reduced HELOCs by $122b to $649b. It cites a real estate channel article, which cites a phone call to Equifax.
According to the Fed's commercial bank reports, banks have reduced HELOCs from a peak of $613b in May 2009 to $595b as of late August. That's only an $18b reduction. That's only HELOCs, only from banks.
According to the Fed's flow of funds reports, total home equity loans are down from a peak of $1,131 billion in 2007 to $1,012 billion as of end of March. So there's your $120 billion reduction, but that includes all kinds of home equity loans, not just HELOCs, from all kinds of lenders, not just banks. The lenders curtailing home equity loans were savings banks, private ABS issuers and mortgage companies.
Thanks for that clarification!
http://www.doctorhousingbubble.com/california-home-equity-hangover-649-b...
Updated DOW weekly chart:
http://stockmarket618.wordpress.com
And don't forget the HELOCs:
See the rest of the article and some eye-opening graphs:
http://www.doctorhousingbubble.com/california-home-equity-hangover-649-b...
thanks
Love it...they are redoing Krugman's 2002 plan. Let's see how long it takes for this one to collapse.
" The Bankers will destroy themselves. " ........ oh thank god, I keep waiting for that. unfortunately, they'll take us all with them. Get rid of these people, am sick to death of all of them. Bankers have become WORSE than used car dealers. WILL ROBERT RUBIN GO AWAY THEN, TOO ?!!
NOW THAT IS A BIG BUBBLE!
House for sale down the street..
Remax sign >>> No Down Payment
No money down 100 % financing...
here we go again ( raleigh nc )
Well...kinda hard to save up for a down payment when you're unemployed.
Markets have been flat for almost a year. Everyone overreacts on a day to day basis but nothing has changed. The Bankers will destroy themselves.
They are waiting for the change in Congress. Then the losses will come like a tsunami and then they will blame the Tea Party and anyone other than themselves.
They think two years of rigorous accounting will brow beat everyone back into their pockets. Hence the 2012 "due date."
The next two years are going to be ugly. UGLY!!!!!!!!
The national R's are strangely silent on their master plan to resuscitate the economy and trim the federal government deficit once they re-take the House. They, of course, have no plan. They also know that ant--incumbent fever is on their side, so they aren't saying anything at all.
The tell will be what happens when nothing changes after November. Actually, this could turn out to be the best circumstance ever: "both" major parties will have a stake in the power structure, and "both" could correctly be perceived to be the source of the ultimate crash. As I've stated before, I expect the R's will "cut the Obama deficit" to under $1 Trillion, maybe to about $800 Billion or so, and then declare themselves to be miracle worker fiscal conservatives. Then, some time later, someone will remember that up until about 2 years ago, a $400 Billion annual deficit was considered untenable.
Of course, the situation in the several states continues to erode, as it does in the cities. All while the banking shenanigans continue unabated.
Right, Jake, you got us. The fact that markets are climbing on relief that the tightened capital requirements that were promised after the last crisis won't be implemented till ... well, it doesn't matter when, because we'll have another crisis long before then, but not anytime soon, yep, that's really got us bears pinned and ready to say uncle. Go Jake, buy, buy, buy.
It is all fantasy now, nothing is based on fundamentals and reason.
I have seen the charge-offs of the future...and they are huge.
Thanks for the heads up on the C-Shiller index...that's the kind of 'hope now' I'm looking for as I haven't bought a house yet and have been watching the attempted bubble-flation in the SF Bay Area with moderate despair.
How long before Banana-Ben is forced to ruin my day and raise rates?
Be patient, convert to PMs, and wait for the dollar to become toilet paper. You won't NEED a mortgage to buy a kick-ass house in 3 years.
"Will we ever learn???" - No, not untill its too late
Bunch of ranting from all you so called knowledgeable folks while the markets keep climbing. Please admit you were all wrong!
Pre-November pump. Buy it if you want to.
Yes, my silver is doing quite nicely today thank you.
Seriously, where's the S&P YTD? Last 10 years? And you're claiming victory off of one morning's move? I'd be willing to bet half of the posters here have little to no positions in the market. And that most of us (if I can generalize) look at the longer term, not just a couple of hours of trading. Day's not even over yet...
Troll...
Oh yes, "Rules are Much Better than Expected".
We must fund the next 785 billion dollar bailout. Or should that be trillion the next time.
Are you really stupid enought to equate economy = market?
You are that foolish? Or is it that you know the reality and hate that others are spanking the the fantasy of others.