Archive for September, 2013

The current plan lenders have to resolve their bad loans from the housing bubble is to prevent the sales of the afflicted properties until prices are pushed back above the outstanding balance of the loan so that the bank won't lose any money. To this end, banks stopped foreclosing on delinquent borrowers, offered them all loan modifications under generous terms, and began denying short sales to any borrower with assets. They've also permitted a lot of delinquent borrowers to stay on as squatters. For the banks to achieve their goal, the have to push prices back up to near peak levels. Most of the delinquent borrowers either bought or refinanced between 2004 and 2007, so the outstanding balance on their…[READ MORE]

Wikipedia defines racism as "views, practices and actions reflecting the belief that humanity is divided into distinct ... groups ... and that members of a certain (group) share certain attributes which make that group as a whole less desirable, ... (or) inferior, ..." When you read the comments homeowners make about renters in today's featured article, imagine the impact if the group described were an ethnic minority. Ask yourself if these comments are racist in nature. The first step toward racism is dehumanization. Wikipedia defines dehumanization this way: Dehumanization describes the denial of “humanness” to others. Dehumanization may be carried out by a social institution (such as a state, school, or family) or via an individual's sentiments and actions. ....…[READ MORE]

I recently wrote about Richmond, CA, moving to seize mortgages through eminent domain. If this plan were to succeed, it would break the banks. Other municipalities would almost certainly follow suit, and the losses would devastate the banking system, probably requiring the nationalization of our major banks (something we should have done in 2008). In military terms, this puts the banks on death ground. They must fight this battle and win, or they will die. Since this is so important to the banks, expect to see every manner of attack and defense brought to bear. In response to the recent request of Richmond, CA, to sell a large number of mortgages at prices significantly below book value on the loans, the…[READ MORE]

The gyrations in most financial markets have little or no impact on housing. However, price fluctuations in the market for 10-year Treasury Bills has a strong impact on how much people can borrow to bid on houses. The 10-year Treasury is a close proxy for mortgage bonds as their durations are very similar. Price movements in either of these markets will impact the others as investors move back and forth for the best possible deal. When prices for 10-year Treasuries fall, so do prices on mortgage-backed securities. When prices on mortgage backed securities fall, interest rates go up (yield is an inverse function of price on bonds). When interest rates go up, house affordability goes down because borrowers can't finance…[READ MORE]

Many issues compete for our attention in the wake of the housing bust. However, the importance of these issues is not equal. Underlying most of them is the central problem of the housing bust: moral hazard. Every decision we make in life has consequences. If we save regularly and invest wisely, the consequences are wealth and peace of mind. If we spend foolishly and speculate wildly, the consequences are periods of feast and famine, delusions of grandeur, enormous entitlements, and when times are tough, unbearable stress. Positive results come from good decisions and visa versa. That's how people distinguish wise from unwise and learn to make decisions to achieve positive and desirable ends. When people do not endure the negative…[READ MORE]

When I hear the name Countrywide I associate it with other companies such as Enron, Worldcom, and Arthur Andersen.   The legacy of Countrywide is infamous for the political favors it purchased in Congress with it's Friends of Mozzila bribes and the allegedly fraudulent loans it underwrote and sold to investors.  Countywide did more than underwrite subprime loans to unqualified borrowers it also forged documents. So, when Countrywide was sinking, I was scratching my head when Bank of American decided to purchase Countrywide for $4 billion dollars.  Even back then Countrywide's reputation was already dubious even if you weren't a bank insider.  Five years later it might have cost Bank of America $40B dollars, or in a percentage calculation it's negative…[READ MORE]

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