More on the 2008 environment: Iraq and the economy

July 2, 2007 – 9:24 am

This morning, Novak said:

It is difficult to exaggerate the pessimism about the immediate political future voiced by Republicans in Congress when not on the record. With an unpopular president waging an unpopular war, they foresee electoral catastrophe in 2008, with Democratic gains in both the House and Senate and Hillary Clinton in the White House.

There are a bunch of reasons for this. But let’s put the housing stuff in context. We are at the very beginning of the crunch. Here is when the adjustable rate mortgages reset:


In other words, over the next several months there will be a sharp increase in the number for foreclosures and it will not calm down until late 2008 or early 2009.

My expectation is that this will be the largest general election issue in swing states out west and in Florida. And it will emphasize the importance of issues linked to economic insecurity like health care. Especially if we begin to pull out of Iraq in September. After all both Hillary Clinton and Barack Obama legislative staffers admit that their plans would result in 100k military in Iraq for the medium term.

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More on the housing bust

July 2, 2007 – 9:06 am

From Bloomberg this morning in a story about the collapse of the housing market in Georgia, you can see the macro situation:

Bear Stearns, the second-biggest U.S. underwriter of mortgage-backed securities now reeling from the worst housing decline since the 1930s, never planned to take possession of the three-bedroom house. …

The lender was Meritage Mortgage Corp., one of more than 60 subprime home loan companies that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to data compiled by Bloomberg. Bear Stearns had bought the mortgage from Meritage at a discount. …

Countrywide Financial Corp., the largest U.S. mortgage lender, said it had $110.1 million of foreclosed real estate at the end of March, quadruple the $27.4 million it held three months earlier.

From last week’s WSJ, here’s a little bit of micro:

Steven Schwaber, a bankruptcy attorney in the Pasadena, Calif., area, says he’s getting more calls from small-business owners who had refinanced into ARMs, tapping their equity in an effort to keep their businesses afloat. "All of the sudden their budgets are out of whack because their house payment went up by 25% or 30%," he says, at the same time fuel prices are rising. Some would have wound up filing for bankruptcy anyway, he adds, but rising interest rates have pushed others over the edge.

For my fellow Republicans reading this, this should be a big wakeup:

Many borrowers who run into trouble have relatively low incomes or scuffed credit records. But housing counselors say they are also hearing from a growing number of middle- and upper-middle-income borrowers who borrowed heavily to finance spending or buy a house they could barely afford. NeighborWorks Homeownership Center in Sacramento, Calif., says that 38% of the borrowers it’s seen this year have "moderate or above-moderate" incomes, up from 24% last year.

In Illinois, the new crop of borrowers includes people with bills for private schools, fancy cars and child care and monthly incomes of $3,500 to $10,000, says Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago. Many of these borrowers took out loans that didn’t require them to document their income and overstated their earnings, he adds.

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