More housing mess

August 21, 2007 – 12:17 pm

This week the stock market seems a little more stable, and the fed has injected more liquidity in the markets. But don’t be confused. Things are bad and could get much, much worse.

The top-line story is that July foreclosures are 9% above June. Recall several facts. First, foreclosures come about 6 months after default. And if ARM resets are a predictor of future default and foreclosure rates, the amount of subprime loans reseting in January and February (these numbers) will double by the end of this year. And these levels of default and foreclosure will stay pretty solid through the end of 2008. Just to be clear, some analysis from John Mauldin:

Research by RBS Greenwich (assuming I read it right) suggests that 20-23% of the subprime loans made in 2006 will go into default and foreclosure. I talked with one head of a mortgage brokerage business in California this week (he has over 800 brokers who work for him) and he thinks that home values in certain areas he services could drop by as much as 50%.

That doesn’t make happy voters. Remember that there’s aren’t just speculators, but people getting second mortgages, new housing, or other perfectly reasonable people, except that they didn’t know what they were buying. And a lot of these were just out of reach:

"The loan application and review process for ‘no-doc’ loans was so lax that such loans are referred to as ‘liar loans.’ In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.

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Does it matter if the political world ignores the economy?

August 15, 2007 – 4:44 pm

Marc Ambinder was sent a letter by a Democratic economist and asks whether the political world is ignoring the economy. I wonder if it matters?

Doesn’t the economy re-assert itself? re:

"When I come back I want to come back as the bond market, because then you can intimidate everybody." — James Carville, Political Consultant

I have certainly been arguing that the housing market is an important issue.

For my gloom and doom of the day, yesterday RealtyTrac released their Midyear Metropolitan Foreclosure Report. The full table is on the right, but here are some highlights:

  • One in 31 households are in foreclosure filings in the Las Vegas area. That’s a swing state and a primary state.
  • One in 46 in Miami, 20k.
  • Another one in 50, for 16k more a little up the road in Ft. Lauderdale.
  • 19k, or one in 50, in the Cleveland area.

There are real people behind these numbers. And their pain will reassert itself, no matter what the politicians try to ignore

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Why is Hillary talking about housing?

August 8, 2007 – 8:18 am

Basically, my answer is that Hillary Clinton is a smart politician, she sees an issue coming, and she is trying to get in front of it.

I have argued repeatedly that the housing and credit bust is going to be a huge issue. It is probably an unsolvable one. After all, in her proposal, Clinton proposes a $1b fund. But, for example, Countrywide’s profits fell in Q2 by about 1/3rd of that number, due primarily to foreclosure problems. When American Home Mortgage went under last week, here was the problem:

The company has been cut off from credit and didn’t have money yesterday to make $300 million of mortgages it had already agreed to provide, the Melville, New York-based company said today in a statement. American Home said it anticipates $450 million to $500 million of loans probably won’t get funded today.

Half the size of her fund in one day. Clinton’s proposals are kind of like throwing a pebble in a river. It makes a splash, but is ultimately, inconsequential because the amounts are just so big.

So why is she doing it? As I said, an issue is coming. It will certainly be debated. And what will happen? Hillary says, according to AP and the NH Union Leader:

Clinton said she’ll introduce her plan when Congress reconvenes next month. If the legislation passes and gets vetoed, she said, she’ll make it a top priority if she’s elected President.

In other words, she wants to be on the front-line of the legislation. The legislation will probably be called Clinton-someone, unless Chris Dodd tries to get in the way of it or own the issue. But Dodd is running for the Cabinet or VP, so there’s little chance of that.

So the answer is that there is an intractable problem. Hillary has found a way to feel people’s pain and be at the center of a debate on the "solving" side. And now anyone, especially a Republican, who criticizes her will be debating the issue on her terms. Good politics.

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Clinton rolls out housing policy

August 7, 2007 – 7:55 am

I have talked a bunch about the housing crunch and its impact on politics. Inevitably the question turns to something like, what can Republicans say or do now to get us out from underneath this issue. Frankly we struggle to find good answers.

Well, Hillary Clinton is announcing her answers. From today’s WSJ:

The latest, Democratic front-runner Hillary Rodham Clinton, is scheduled to unveil today a plan to combat "mortgage lending abuse" — another example of the Democratic Party’s increasing willingness to explore new regulations on business and markets. 

The U.S. senator from New York is proposing a package of measures that would impose new disclosure requirements on mortgage brokers and curb their ability to dictate lending terms. Specifically, Mrs. Clinton is planning to say today that she would force brokers to state their fees in plain language, require a full disclosure of monthly tax and insurance costs for subprime loans, and ban prepayment penalties on all home mortgages. This latter proposal could shake up the industry, one analyst said.

In Nevada, where as high as 5 or 10% of the population could be in the middle of foreclosures, that has got to be a good message for targeting swing voters. If I were her, I would buy a list of foreclosed addresses and send those voters her policy announcement. Perhaps hold parts of the roll out in the Southwest, California, and Florida.

Now are Republicans going to come up with answers to this? Or are we going to tie ourselves to the tracks so we can be rolled over?

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Cramer blew up; Listen to what he said

August 6, 2007 – 3:32 pm

Cramer blew up on CNBC. It’s on Drudge. Blah blah blah. Read what he actually said. And think about what that will mean politically:

No, we have Armageddon. We have Armageddon …

Will somebody come on TV and tell people how bad it is. …

We have thousands of people losing their homes right now. 14m people took a mortgage in the last three years. 7m of them took teaser rates or took piggy-back rates.  They will lose their homes. …

It really is going to be bad. Really bad.

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Why foreclosures matter: The numbers are huge

August 1, 2007 – 5:30 am
State 1/x Households
in  Foreclosure		 # of Households
foreclosing		 Bush 04
margin
 		EVs Primary
Date
Nevada 40 25,208 21k 5 1/19
Colorado 60 34,287 100k 9 2/5
California 69 189,560 -1.2m 55 2/5
Michigan 80 55,896 -160k 17 1/26??
Florida 81 102,213 380k 27 1/29
Ohio 82 60,728 120k 20 3/??

I know that I keep harping on the housing market as an important issue in the 2008 election. Let’s look at some numbers from RealtyTrac’s first-half of 2007 report, just released on Monday, in the worst 6 states. (ranked by % of households in foreclosure) So that you can get a sense of the possible electoral impact of these numbers, I have also included the margin by which Bush won (or lost) these states, the number of electoral votes that these states have, and the primary date. Some things jump out:

  • In the first half of 2007, more houses moved into foreclosure than the number of votes that Bush won by. (Note also, that "households" probably is something like 1.3 adults)
  • In Ohio, the number of houses that moved into foreclosure is approximately the same size as Bush’s swing.

RealtyTrac believes that this pace of foreclosures could stay stable or increase over the remainder of the year:

“Despite a slight drop in June, foreclosure activity shows no sign of slowing down,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Based on the rate of foreclosure activity in the first half of 2007, we could easily surpass 2 million foreclosure filings by the end of the year, which would represent a year-over-year increase of over 65 percent.”

So, if you assume another 6 months as bad as these 6 months (and that the rates stay relatively stable in these states), Florida, Colorado, and Michigan would have a number of foreclosing households greater than the swing of the 2004 election results in those states.

Now, I am not saying that these are all Republican voters. Indeed, many of them will not be. But, by and large, people who think that their incomes will go up tend to vote Republican. In any case, with these large numbers, it is clear that this has the potential to become an election issue. Furthermore, with Nevada, Michigan, and Florida having very early contests, there is a real chance that Presidential candidates will have to take positions on these issues.

Candidates will need a message on this. Maybe they will need policies. In any case, electorally significant numbers of people will be effected by this issue.

If I were really clever and had a message, I might even target these people. After all, you can buy their addresses. In Nevada, we are probably talking about enough numbers to win a caucus.

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Arizona housing bust

August 1, 2007 – 4:08 am

Another swing state, another problem. The AZ Republic has the story:

In total, RealtyTrac has estimated that one of every 92 households in Arizona is in some stage of foreclosure, meaning the situation is likely affecting both speculators and average homeowners. …

That firm shows that 2,952 homes were foreclosed on in Maricopa County from January through June, up from 208 during the first half of 2006.

1300% increase in 2 years?

H/T: The Housing Bubble Blog

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Mortgage lender collapses; real estate prices continue to fall

July 31, 2007 – 4:05 pm

The big news today in housing is this, from Bloomberg:

American Home Mortgage Investment Corp. shares plunged 89 percent after the lender said it doesn’t have cash to fund new loans and may have to sell off assets. …

American Home caters to borrowers whose credit scores fall just short of standards for top-rated mortgages. The announcement provides fresh evidence that defaults may be spreading from subprime borrowers with the worst credit records to homeowners with more reliable repayment histories. The biggest U.S. mortgage lender, Countrywide Financial Corp., said last week overdue payments rose among some of its most creditworthy clients.

Shares of American Home, halted by the New York Stock Exchange before yesterday’s regular session, plummeted $9.32 from their July 27 close to $1.15 in 2:50 p.m. New York Stock Exchange composite trading. They changed hands at $6.39 in pre-market transactions yesterday. Two years ago, they fetched almost $40.

Banks pulled the money out because of fraud. Nice. Now the problem is that there is a second side to this. Housing prices are collapsing too. The Big Picture has the details, about among the hardest hit? Las Vegas, Miami, and Denver. Three swing states. Here’s their summary:

Pretty astonishing fall from the peak. And, based upon inventory levels and present sale rates, we are not remotely close to done.

Defaults and foreclosures. Falling house values. Those do not make for a good environment for economic optimism, which Republicans need to win elections.

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More bad housing data strike higher incomes

July 24, 2007 – 10:12 pm

UPDATE: The Big Picture has details on the conference call announcing these results.

Countrywide Financial Corp. had very bad Q2 profit numbers:

The rise in credit-related costs were primarily related to the company’s investments in prime home equity loans, Mozilo said.

Unlike subprime loans, which target borrowers with spotty credit histories, prime loans are typically available only to those with solid credit profiles who are considered less risky.

The rise in delinquencies and projections of more defaults led Countrywide to write down the value of securities backed by prime home-equity loans by $388 million in the quarter, reducing earnings by 40 cents per share.

That lowered their Q2 profit by 50%. Now why would this be happening? Dumb people? Not exactly:

The company said the delinquencies were not due to borrowers struggling with mortgage interest rate resets, as many had expected.

Instead, the delinquencies have been largely due to people losing their jobs or similar factors, the company said. Those homeowners have been unable to refinance because the value on their home has fallen and the credit crunch has cut off other borrowing options.

"I do think it’s important to observe what happens going forward," Mozilo said. "We are experiencing home price depreciation almost like never before, with the exception of the Great Depression."

The story is that well-off or financially-reliable people are having a bad, bad time. Check out this story from the Chicago Tribune:

The Kaneville-based public-records tracker looked at foreclosures involving mortgages of $350,000 and higher and found 584 in those two counties in the first five months of 2007, more than double the 265 recorded in the same period last year and 117 in 2005. For comparison’s sake, the median home price in the Chicago area is $252,000.

In many cases, the owners had the mortgage for less than a year, said Patty Maier, Record Information’s data management director. "Are these cases of biting off more than they could chew or faced an unexpected personal crisis? Maybe a little of both," she said.

Those Republican voters aren’t voting this time. When people start saying things like "never before with the exception of the Great Depression" something is really, really serious.

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Florida foreclosures looking awful

July 20, 2007 – 1:30 pm

More bad news on the housing front. Here are some maps and charts. Note Florida and Nevada. Not that Michigan, Ohio, Pennsylvania, or New Mexico are doing well. These charts are from the WSJ, via The Big Picture.

These might also make taking back a couple of House seats tough. Pombo’s, Clay Shaw’s and Foley’s seats will be in the middle of this.

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