The federal reserve is dominated by Keynesian economists who all have one thing in common: when their policies fail, they believe doing more will somehow succeed. If the definition of insanity is repeating the same behavior expecting a different result, then all Keynesian economists and all federal reserve officials are certifiably insane.
Bernanke Doubles Down on Fed Bet Defied by Recession: Mortgages
January 20, 2012, 3:40 PM EST — Bloomberg — By Jody Shenn
Jan. 11 (Bloomberg) — Ben S. Bernanke is signaling his willingness to double down on a three-year bet that’s failed to revive housing, showing the extent of the Federal Reserve chairman’s effort to wrest a recovery from the deepest recession.
The policy so far has failed to reflate the housing bubble, which is what Bernanke wants. I’m sure in his mind the policy has been somewhat successful because house prices are higher than they would have been if he had allowed interest rates to rise to properly price risk. Higher prices make for greater capital recovery and smaller losses at the federal reserve’s member banks. Does that make the policy a qualified success? Certainly not for prospective buyers wanting to pay a lower price.
Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen 4.1 percent, and is down 32 percent from its 2006 peak, according to an S&P/Case-Shiller index. The central bank is poised to buy about $200 billion this year, or more than 20 percent of new loans, as it reinvests debt that’s being paid off. Some Fed officials have said they may support additional purchases that Barclays Capital estimates could total as much as $750 billion.
One thing is certain. Bernanke is determined to keep mortgage interest rates as low as he can for as long as he can even if the federal reserve is the only buyer willing to overpay for this debt.
Even as Bernanke and fellow U.S. central bankers consider expanding their efforts, they are acknowledging their inability to turn around the housing market without help from the rest of the government.
They can’t turn around the housing market even with the help of the rest of the government.
Bernanke underscored the importance of residential real estate, which represents 15 percent of the economy, in a study he sent to Congress last week that said ending the slump is necessary for a broader recovery.
“They’re definitely frustrated and disappointed,” said Stephen Stanley, chief economist at Pierpont Securities LLC and a former Federal Reserve Bank of Richmond researcher. “I’m sure they would have anticipated they would have gotten more bang for their buck.”
LOL! You think? They spent $1.2 trillion, and house prices went down anyway.
While the Fed has helped push mortgage rates to record lows of less than 4 percent, home-loan borrowing in 2012 is forecast to decline to the least in 15 years.
That is great news. Americans are deleveraging. …
Property SlumpMonetary policy hasn’t been enough to prevent house prices from continuing their more than five-year long slide, with Pacific Investment Management Co.’s Scott Simon, the bond manager’s mortgage head, forecasting further declines of 6 percent to 8 percent.
I’m not that bearish, but he could be right if the banking cartel collapses and large numbers of REO are released to the market.
An S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent in the year through October. Existing home sales remain 18 percent below their 10-year average and Dudley estimated properties seized by lenders may rise to 1.8 million this year, and the same number next year, from about 1.1 million last year and 600,000 in 2010.
Dudley, a federal reserve governor, is expecting triple the number of REO in 2012 as compared to 2010. That’s huge! If they do take back 1.8 million homes, what are they going to do with them? With sales rates being 18% below their 10-year average, they will be owning houses for a decade if they don’t flood the market with REO.
Protecting Taxpayers
Potential first-time buyers are particularly hurt by tightened credit, Bernanke’s paper said. Lenders are avoiding making risky loans for government programs on concerns that Fannie Mae and Freddie Mac may force them to repurchase the debt if there’s an underwriting error or delinquencies will prove costly for servicing departments.
Isn’t that a good thing? Shouldn’t originators be concerned over the quality of the loans they underwrite? Would we prefer them to give loans to anyone with a pulse?
Only about 85 percent of lenders are offering loans eligible for guarantees by Fannie Mae and Freddie Mac, which were seized by the government in 2008, to borrowers with 680 credit scores and 10 percent down payments, according to LoanSifter Inc. data cited by the study. Fewer than 50 percent are making loans in the companies’ lowest credit tier, the Fed’s Duke said last week.
Although Fannie Mae and Freddie Mac’s ability “to put back loans to lenders helps protect the taxpayers from losses, an open question is whether the costs of the associated contraction in credit availability outweigh the benefits” of lower losses, she said.
Since the costs are being absorbed by taxpayers, and since the benefits accrue to loan owners and banksters, I don’t think there is much question what the best policy option is. I would prefer my money be saved rather than being wasted on the parties to a private transaction that screwed up.
Bernanke Repercussions
Though the bigger ideas in Bernanke’s report may sound good, “repercussions” would include further entangling banks and the government in housing, said Jim Vogel, a debt analyst at FTN Financial in Memphis, Tennessee. That could limit financial companies’ access to capital and make it impossible for the U.S. to unwind its involvement in mortgages for decades, he said. The study said it avoided discussions of “longer-term restructuring of the housing finance market.”
“They say they’re not going to think about the future of the system, but that leaves such a large, empty spot in the white paper,” Vogel said.
They don’t want to think about the future because they know they can’t unwind the GSEs any time soon. Right now the entire housing market is completely dependent upon this subsidy. If the props were removed, interest rates would go way up, lending standards would tighten further, house prices would crater, and strategic default would wipe out the banking system. I know it sounds like a dream come true, but it would be very disruptive to the economic system if done too quickly.
“There should be no confusion, no mistake, that we’ve put duration risk onto the Fed’s balance sheet,” Sack said in 2010. “These decisions are being made to produce economic outcomes” rather than “to produce a certain return on the portfolio.”
–With assistance from Caroline Salas Gage and Pierre Paulden in New York and Lorraine Woellert and Craig Torres in Washington. Editors: Pierre Paulden, Rob Urban To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net
The federal reserve has no business meddling in the housing market irrespective of whatever benefit they believe it will have. Their mandate does not include bailing out parties to private transactions who failed to heed the risks.
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Costa Mesa prices off a whopping 11.2%
Costa Mesa is being particularly hard hit by the double dip. Prices have been falling there on a year-over-year basis for the last 12 months, and the pace of the declines is accelerating.
For more news, market analysis and property profiles, please see the North OC Housing News.
————————————————————————————————————————————-
Proprietary OC Housing News home purchase analysis 
1252 WATSON Ave Costa Mesa, CA 92626
$399,999 …….. Asking Price
$377,500 ………. Purchase Price
4/25/2003 ………. Purchase Date
$22,499 ………. Gross Gain (Loss)
($30,200) ………… Commissions and Costs at 8%
============================================
($7,701) ………. Net Gain (Loss)
============================================
6.0% ………. Gross Percent Change
-2.0% ………. Net Percent Change
0.7% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$399,999 …….. Asking Price
$14,000 ………… 3.5% Down FHA Financing
3.92% …………. Mortgage Interest Rate
30 ……………… Number of Years
$385,999 …….. Mortgage
$105,121 ………. Income Requirement
$1,825 ………… Monthly Mortgage Payment
$347 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$100 ………… Homeowners Insurance at 0.3%
$444 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,716 ………. Monthly Cash Outlays
($281) ………. Tax Savings
($564) ………. Equity Hidden in Payment
$19 ………….. Lost Income to Down Payment
$120 ………….. Maintenance and Replacement Reserves
============================================
$2,009 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,500 ………… Furnishing and Move In at 1% + $1,500
$5,500 ………… Closing Costs at 1% + $1,500
$3,860 ………… Interest Points
$14,000 ………… Down Payment
============================================
$28,860 ………. Total Cash Costs
$30,700 ………. Emergency Cash Reserves
============================================
$59,560 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
1252 Watson Avenue, Costa Mesa, CA 92626 (MLS # S12002774)
(all data current as of 5/18/2012)
| Price | $389,900 |
|---|---|
| Beds | 3 |
| Baths | 1 full, 1 half |
| Home size | 1,178 sq ft |
| Lot Size | 6,290 sq ft |
| Days on Market | 133 |
Beautifully Upgraded Single Story home. This 3 bedroom 1.5 bath home has a great circular floor plan that is perfect for entertaining. The spacious dining/kitchen area open up to the ample backyard- perfect for summer BBQ's/large gatherings. It is beautifully appointed throughout, including fashionable hardwood, attractive newer light fixtures/chandeliers, large base molding, Stone fireplace in living room. The kitchen has refinished cabinets and updated granite counter tops accented with stainless appliances and a double oven! The kitchen conveniently overlooks both the living area/fireplace and the backyard at the same time. Down the hall to the right you will find one totally renovated bathroom. Extravagant molded tub encased in neutral Autumn Slate and classic marble topped vanity. All faux paint throughout the house is nice and neutral/can accommodate/match any decor. Farther down the hall you will find 2 bedrooms to the left and the Master with master (orig) bath at the end. The master bedroom has windows on 2 sides letting great natural light in for most parts of the day. This home has a very convenient location-Close to shopping, fine dining, parks, schools, and easy freeway access.
Property Type(s): Single Family, Residential
| Last Updated | 4/2/2012 | Tract | Unknown (Other (OTHR)) |
|---|---|---|---|
| Year Built | 1955 | Community | South Coast Metro |
| Garage Spaces | 2.0 | County | Orange |
| Total Parking | 2 | Walk Score ® |
83
|
Price History
| Prior to Feb 6, '12 | $399,999 |
|---|---|
| Feb 6, '12 - Today | $389,900 |
Location
Listing information deemed reliable but not guaranteed. Read full disclaimer.
Listed with Stephanie Hart, Forecast Realty Inc.
(view all details for MLS #S12002774)
Competing Listings
 |
$500,000 3042 WARREN Ln |
0.17 miles 3 bd / 1.25 ba 1,150 Sq. Ft. |
|
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$400,000 1184 PAULARINO Ave |
0.22 miles 3 bd / 1.75 ba 1,393 Sq. Ft. |
|
 |
$535,000 1320 CONWAY Ave |
0.23 miles 3 bd / 1.75 ba 1,500 Sq. Ft. |
|
 |
$439,900 1194 BISMARK Way |
0.31 miles 3 bd / 1.75 ba 1,426 Sq. Ft. |
|
 |
$419,900 1396 SHANNON Ln |
0.37 miles 3 bd / 2 ba 1,244 Sq. Ft. |
|
 |
$505,900 3080 TAYLOR Way |
0.41 miles 4 bd / 1.75 ba 1,410 Sq. Ft. |
|
 |
$380,000 3136 BOSTON Way |
0.41 miles 3 bd / 2 ba 1,290 Sq. Ft. |
|
 |
$389,900 1148 CARSON St |
0.44 miles 3 bd / 1.75 ba 1,291 Sq. Ft. |
|
 |
$299,900 3127 COLLEGE Ave |
0.46 miles 3 bd / 2.5 ba 1,240 Sq. Ft. |
|
 |
$489,900 3037 BABB St |
0.63 miles 5 bd / 2 ba 1,426 Sq. Ft. |
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I have a mental picture of Ben in a small basement lab (think 1950′s B movies), looking like a mad scientist printing money and laughing fiendishly. Then he has another part of the lab when he invents higher dominations of federal notes so he can print even more faster.
Mortgage Writedowns Could Cost Taxpayers $100 Billion
By Lorraine Woellert | Bloomberg – 17 hours ago
Forgiving mortgage debt on Fannie Mae and Freddie Mac loans would cost the taxpayer-funded companies almost $100 billion, their regulator said.
The Federal Housing Finance Agency said that as of June 30, the companies guaranteed nearly 3 million mortgages on single- family homes that are underwater, or worth less than the loans they secure.
“FHFA estimates that principal forgiveness for all of these mortgages would require funding of almost $100 billion,” FHFA Acting Director Edward J. DeMarco said in a Jan. 20 letter to Representative Elijah Cummings, a Maryland Democrat who had threatened to subpoena the information. The FHFA posted the letter on its website today.
Nearly 80 percent of the Fannie Mae and Freddie Mac borrowers with negative equity were current on their payments, DeMarco said.
DeMarco, whose agency was created by Congress to minimize losses at Fannie Mae and Freddie Mac and is independent of President Barack Obama’s administration, has maintained that principal forgiveness would increase the size of the government’s bailout of the companies, which have cost taxpayers more than $153 billion since they were taken under government control in 2008.
The agency compared the cost of principal forgiveness to the companies’ current practice of forbearance, which allows delinquent borrowers to defer payments.
“Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac (FMCC) substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action,” he said.
Subpoena Threat
Cummings, the top Democrat on the House Oversight and Government Reform Committee who sought to subpoena the analysis last week, was reviewing the letter and had no immediate comment, said Jennifer Hoffman, Cummings’ spokeswoman.
Consumer groups, labor unions, social justice advocates and some economists are pressuring Washington policymakers to force Fannie Mae and Freddie Mac to do more to help homeowners dig out of a decline in home prices that has cost borrowers some $7 trillion in household wealth since 2006. Helping borrowers would save taxpayers money in the long run by minimizing defaults, according to some analyses.
Too bad the half-life of central bank interventions (promoting debt and speculation to outpace inflation) is getting shorter and shorter. Look-out below….
Mortgage tax getting an 400% increase before implementation
by North OC Housing News
l’m reading several different articles on the new mortgage tax. Both articles have conflicting information, so I’ll cite the articles in the end of my comments and post links. For example, one source says the tax will go into affect by February 17th and the other other one says April 1st. I’ll have better information in the next few days. Also I need to revise my predictions on mortgage rates in the future for 2012, housing issues are changing very fast this winter.
More
JMHO … political pressure could cause the Bernank more pain. We need to look no further than Ron Paul … his popularity has tripled in 4 years. Just think, 12 years ago Greenspan was called the “Maestro” in Bob Woodward’s book, and now he and his replacement, Bernanke, are considered stupid, incompetent, evil, communists, private bankers, bastards, etc …
Everyday people are becoming educated (enlighten) on the Fed and there backroom deals designed to bailout banks and speculators. The anger is rising, and politicians who side with the Keynesian’s, are gonna feel more heat.
I hope you are right. I wonder what happens when a bank like B of A looks for another bailout this year? In this political climate, a too-big-to-fail bailout will have repercussions.
Oh, they’ll still get the money. Just more quietly.
Fannie, Freddie writedowns too costly: regulator
(Reuters) – The regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) told lawmakers that forcing the two mortgage firms to write down loan principal would require more than $100 billion in fresh taxpayer funds.
In a letter sent on Friday to the Republican and Democratic leaders of a U.S. House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth.
It said it had determined that such reductions would be more costly for the two firms than allowing those troubled borrowers to default.
MORE
Crafty Ben Bernanke…………………with update at 9:40 AM CST
http://www.eureka-perspectives.com/
January 26th, 2012 ·
Ben must have stayed awake many nights to try and figure out how to setup yesterdays releases and interviews. My clue is an old saying “a guy with a gun who says don’t mess with me, I have more bullets” is out of bullets. The financial press, especially CNBC wants to believe that some kind of QE3 is coming. I don’t think so.
The Fed is obviously scared. They really didn’t change anything other than say interest rates would stay cheap until 2014 unless things improved. Ben went out of his way to use the stimulus talk more than in recent times and his “helicopter Ben” legacy precedes him.. I would guess that Europe and the US Elections are the two top things that he is worried about, one he can allude to, the other he cannot talk about. He knows that if the economy goes south this year Obama is toast, and if Gingrich beats Romney, Ben knows he is toast and will go out in disgrace. I wouldn’t sleep either.
One good thing did happen yesterday, Geithner said he wouldn’t be around if Obama gets a second term.
The short-term traders have the ball for a few days here. Watch the dollar closely, it is backing off into the 79.00 support area that we mentioned a few days ago. No change in our positions are being made.
Update:
We have gone to a 50 percent short positions in stocks this morning. With our 80 percent short position in gold we are now at a leverage ratio of 1.3 short of trade positions( short gold and stock). Forgot to mention my hedge of my iphone put on yesterday. Got short apple at 454.17 on yesterdays opening.
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