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Posts Tagged ‘foreclosure

The U.S. economy and housing – part II

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foreclosuremapAug09               Foreclosure rates and Unemployment by state

Risky lending practices have led to a stellar rise in home prices and subsequent plunge when the housing bubble started to burst in the so-called sand states of California, Florida, Nevada and Arizona. It is no surprise that delinquency rates for missed or late mortgage payments have spiked strongly in those areas but also around the country.

In the second quarter of 2009 according to the Mortgage Bankers Association (MBA) delinquency rates for one-to-four-unit residential properties have reached a seasonally adjusted rate of 9.4 percent of all loans outstanding. These numbers set the record for highest late payments rates ever recorded.

Foreclosed properties are also at record high with 4.3 percent at the end of the second quarter, leading to a total combined 13.7 percent of loans past due, also the highest amount of non-current payments in the history of the MBA survey. A welcomed exception are loans 30 days past due which are still well below the record set in the second quarter of 1985.

A sure sign that mortgage problems are being driven by economic recession rather than non-conforming lending practices is the increase in foreclosure rates with prime fixed rate loans. Foreclosure filings are now spreading to areas hit by the economic downturn. The combined percentage of foreclosure filings in the sand states has decreased slightly to 44 percent from 46 in the first quarter.

The State of Oregon is a good example with its unemployment rate rising to 11.9 percent in July compared to last year, at the same time foreclosures in the state are up a whopping 84 percent. The problem seems to be unemployment rather than toxic loans. Many first time home owners who bought at the peak of real estate prices simply have not enough equity in their homes and cannot afford current mortgage payments due to the weak economy.

Of course the actual foreclosure rates are very hard to predict. Government moratoriums have effectively created a hidden backlog of foreclosures that one day have to be dealt with. There are also more warning sign of homeowners under duress emerging as fewer are catching up on lapsed mortgages.

A report from Fitch Ratings found that cure rates for prime loans collapsed to 6.6 percent in July from an average 45 percent for the years 2000 through 2006. Cure rates have also fallen dramatically for non-conforming loans of Alt-A and subprime category. Fitch looked only at a return to current payment for loans bundled into securities, excluding GSE and non-securitiezed loans. 

This dramatic shift in the recovery of delinquent loans towards current payment is partially caused by the economic recession and fall in home prices, which puts a significant number of homeowners under water with little hope of ever recovering their investments. With toxic loans from non-conforming lending practices on the one hand and economic recession on the other, it is no surprise the outlook for both the economy and housing remains highly uncertain.

Few signs of a turn around in housing are starting to emerge. According to Case/Shiller nationwide home prices are showing tangible signs of improvement month over month in June and May of this year. In some areas where prices have fallen dramatically investors are coming back to the market hoping to snap up properties on the cheap.

The Outlook remains uncertain and yet a recovery will by and large depend on the pace of turn around in the economy. While it is no secret that recessions caused by a slump in businesses of the financial services industry tend to last longer, on average almost five years, the depth of the economic trough and the pace of recovery is still unclear.

Key to answering the question whether we will have a V, W, U, or L shaped recovery lies with the American consumer. In the past abundance of credit fueled conspicuous consumption and a debt driven economy. No wonder many are fearing a new found admiration for frugality that is exemplified by an increased savings rate in the U.S. today.

Even though less consumption in the U.S. would almost certainly have implications reverberating around the global economy, the results of this dramatic shift in behavior would be felt most severely in the U.S. itself. While there likely will have to be some shift towards a more export driven economy it is hard to imagine that policymakers in the U.S. are willing to completely adjust to this new set of paradigms without recourse to pre-crisis conditions.

In fact strong signs of reoccurrence of pre-crisis behavior are starting to emerge. Reports of once-again record compensation packages among employees in the financial services industry have angered critics who see the industry at the center of the economic storm and would like to see more humbleness instead of the same old greed.

Even more daunting is another bad habit that many consider at the heart of the financial meltdown through its manipulative prowess in credit distribution behavior. Many banks still stuffed with risky mortgage loans from frothy days of real estate exuberance are once again engaging in what some call resecuritization of real estate mortgage investment conduits.

At the heart of Wall Street’s newest innovation is the re-remic, an impaired bond that does not necessarily have a natural buyer but by splitting it into two bonds may find a buyer for both of them. Investors who take on a really risky pool of securitized loans agree to lose money first if the deal goes sour. Investors in the safer pool of assets get paid first, therefore securitized loans in this category are slapped with a AAA-rating. Sound familiar?

The financial meltdown shooting out from non-conforming lending practices is in part credited to the failed securitization of mortgage loans deemed useful by false credit ratings. Yet, here we go again relying on financial repackaging of inferior securities dubbed suitable once again by rating agencies.

Sifma and the European and the American Securitization Forums (ESF and ASF) are ambitiously drafting new rules to rebuild confidence in structured credit markets reacting to a call from financial regulators to enhance transparency in this notoriously shrouded over-the-counter market. There is clearly a consensual desire to clean up the securitization markets, no wonder given its impact on the current financial crisis.

Initiatives aimed at standardizing issuer disclosure, facilitating and broadening investors’ access to transaction information and enhancing the usability of information are all welcomed but do they really justify the inherent risks purported by this form of financial engineering? Wall Street’s history and its future always has been and always will be abusive in nature, which should give everyone a moment’s thought, unless the crisis was for naught.

While this initiative has been started more than a year ago it does not seem to get into gears. The first drafts of reform were to be implemented at the beginning of 2009 but new rules are still in the workings and have not taken off ground yet. The MBAs proposal to standard procedures for servicing non-conforming residential mortgage loans and ASF’s Project Restart aimed at the securitization market are now trying to put the squeeze on regulators to let more players get sucked back into this ailing market.

So far the magic wand of enhanced transparency did not help to lift the freeze in in the securitization market. During Goldman Sachs’ second quarter the securitization powerhouse was only able to sell $12.9 billion in securitized loans, with meager $496 million outside of safe government agency bonds. That dwarfs in comparison to upwards of $30 billion at the beginning of 2007.

Inquisitive minds might argue that policy makers are not too successful in their attempt to hawk back to pre-crisis conditions. The emperors new clothes in the form of enhanced transparency seems not sufficient to once again resurrect bad habits from the dawn of the credit crisis.

Nevertheless much will depend on future success of the credit-distribution-lifter in form of securitized mortgage or other asset backed loans. Without it the American consumer might well be maxed out, with it the financial services industry and investors will probably once and for all loose their last shirt over it. Much like the Federal Reserve also Wall Street seems to be damned if they do and dammed if they don’t.

While these contradictions contribute to the overall uncertainty credit markets in general are still not healthy. Recently the Fed extended its Term Asset-Backed Securities Loan Facility (TALF) for another six months. It was scheduled to expire at the end of 2009.

In the UK, Bank of England governor King detonated a bomb last week when it became known that he voted for an even bigger increase in the bank’s quantitative easing policy. The minutes of the August meeting revealed King wanted to expand the program by 75 billion instead of 50 billion pounds.

In this apparent game of confidence policymakers are hitting the monetary accelerator full throttle to make sure the public can have trust in their abilities to revive the economy. Yet under these strange conditions a sustained recovery in housing, the economy and on Wall Street seems to be still ways off.

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Wall Street – Washington Connection, Part I

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DimonandBlankfeininWashington

When we think about the financial crisis on Wall Street and in the economy we try to figure out why it happened, who was responsible and how can we prevent it from happening again in the future. Today we still have a lot more questions than we have answers, but the sun is beginning to shine, and one issue is starting to emerge which probably for years and years has been tucked away from the public’s view.

This crisis is pulling the blanket of secrecy from a bunch of Wall Street bankers smooching and spooning undercover with Washington’s big guys for the last several decades. Of course we would expect them to be somewhat embarrassed about busting their secret arrangements, maybe even flee the scene to break up their unholy unity for good. Much to our surprise none of this is actually happening.

Mr. Dimon, chairman and head of JPMorgan Chase, has sought to ratchet up his business of influencing Washington in late 2007, when the financial crisis hit and the democrats together with the Obama administration were beginning to settle in. Jamie Dimon together with Goldman’s Loyed Blankfein are among a rare breed of executives who have not jeopardized their companies by taking unwise decisions. Both CEOs in the meantime have returned all funds received from Treasury’s capital assistance programs (CAP).

These days JPMorgan’s chairman comes to town about twice a month and not twice a year as he used to. He met with Treasury secretary Geithner, White House economic advisor Lawrence Summers, and several lawmakers in recent months and gets a list from his staff to call a half-dozen public officials each week. He has made it a regular thing to nurse his precious Washington relations to make sure he is not kept out of the loop.

When JPMorgan wanted to return its TARP funds his influential connections helped him to ease the terms for banks allowing them to repay the money. In the end Washington caved in to Dimon’s complaints about limitations for hiring skilled foreigners and on executive pay. He also helped thwart attempts to lower the principal on mortgage payments which would have benefited homeowners.

Another contentious issue is Mr. Dimon’s objection to regulate the market for credit derivatives by keeping part of it independent from regulated clearing operations. Fees from underwriting over-the-counter credit derivatives are a major source of income for JPMorgan Chase.

Mr. Dimon’s connections to Washington date back to his day at Citigroup when he offered Mr. Rahm Emanuel, then senior advisor to president Bill Clinton, a job at the firm. Today Mr. Emanuel serves in the Obama administration as White House Chief of Staff. William Daley, former commerce secretary and influential Chicago lobbyist, is also currently on JPMorgan’s payroll. Mr. Dimon mindfully replaced some of his staff with wired democrats to better serve his Washington agenda. 

Most surprising is his connection to Treasury secretary Geithner. Mr. Dimon holds a seat on the board of the New York Federal Reserve. Mr. Geithner served as president of the NY Fed till he joined the Obama administration in January of this year. How can a CEO of a public company sit on the board of a federal regulator? That’s like John Gotti being a member of the U.S. Department of Justice.

For the first time this Monday JPMorgan Chase held a meeting of the firm’s board in the nation’s capital. Messrs. Geithner and Emanuel were both invited, but only the chief of staff first agreed to later withdraw not to appear too cozy with Wall Street bankers. This invitation is nonetheless testament to the arrogance of invincibility that has shrouded executives of our most powerful corporations.

In Washington nothing gets done without support from Wall Street and Wall Street knows it. Wallshington is more important and influential than the oil industry, the industrial complex or even the powerful military. This has never been so true like it is today with a handful of firms left unfettered from the crisis and government’s control. Their power is more concentrated in the hands of a few and therefore even more difficult to control.

Executives on Wall Street get whatever they wish from every administration or congress there is. This too big to fail monster is sucking the lifeblood of morality, decency and sustainability out of a societal fabric that once was the envy of the rest of the world.

In the latest report for the period ending July 17, 2009, the Treasury department listed employed funds under the Troubled Asset Relieve Program (TARP). The financial industry received $204.2 billion, $70.2 billion have been returned, leaving the industry with a total of $134 billion outstanding. In the automotive industry $77.8 billion from 79.9 are still owed to the taxpayer. Automotive suppliers received a more humble $3.5 billion. Targeted investments in Citygroup and Bank of America totaled $40 billion and asset guarantee programs for Citigroup another $5 billion. The Troubled Asset Loan facility (TALF) committed $20 billion. Rescuing troubled insurer AIG required another $69.8 billion.

To this day the financial and the automotive industry owe the taxpayer $350 billion, yet government has devoted only $18.7 billion in home affordable modification programs to avoid foreclosures. While taxpayers were required to fund the bailout of Wall Street with 350 billion dollars the financial industry is reluctant to modify loans and scores of families are still forced out of their homes.

This current administration with the most eloquent president since years will have a hard time to sell this to the general public. Wall Street firms reverting to old habits by once again doling out mega bonuses to their club members will not make it any easer.

Keine Entwarnung bei Hypothekenzahlungen in den U.S.A.

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listensmall

Die Finanzkrise hat ihren Ursprung im Immobilienmarkt der Vereinigten Staaten von Amerika. Millionen haben sich mit falschen Investitionen verspekuliert und sind jetzt gezwungen die Konsequenzen zu tragen. Im gegenwärtigen Höhenflug der Finanzmärkte geht der Umstand, dass immer mehr Hypothekenzahlungen in Rückstand komme, fast unter.

Nach einem Bericht des führende online-Anbieters von Liegenschaftspfändungen in den U.S.A., RealtyTrac, sind ‘foreclosure filings’ im April wieder deutlich angestiegen. Insgesamt wurden 342,038 Anzeigen für Zahlugsverzug, Versteigerungen und Pfändungen von Immobilien durch die Bank, registriert. Das entspricht einer Zunahme von 32 Prozent gegenüber dem Vergleichsmonat im vergangenen Jahr. Einer von 374 Haushalten in den U.S.A. sind davon betroffen. Bank Pfändungen sind dabei auf dem niedrigsten Stand seit März 2008. Das zwischenzeitliche Moratorium für die Banken Verzugsmeldungen aufzuschieben, hat offensichtlich nur eine kurzfristige Entspannung der Situation bewirkt. Das lässt darauf schließen dass wir gegenwärtig einer neuen Welle von Zwangsversteigerungen gegenüber stehen. Eine Entwarnung beim Verzug von Hypothekenzahlungen ist demnach nicht unmittelbar zu erwarten.

Die Staaten Kalifornien (96,560), Florida (64,588), Nevada (16,266) und Arizona (16,245) sind am meisten betroffen. Dabei sind 10 Bundesstaaten für 75 Prozent aller Verzugsanzeigen verantwortlich. Nevada hat die höchste ‘foreclosure rate’ des Landes. Einer von 68 Haushalten ist betroffen. Unter den Metropolen ist es vor allem Las Vegas mit 14,073 Immobilien im April, wobei einer in 56 Haushalten betroffen ist — das entspricht sieben mal dem nationalen Durchschnitt.

Dieser weitere Verfall des Immobilienmarktes in den Vereinigten Staaten bewirkt dass sich die Preise nachwievor in einem Abwärtstrend befinden und noch keine starken Anzeichen für eine Stabilisierung zeigen. In 88 Prozent der untersuchten Städte ist der mittlere Preis für Immobilien im ersten Quartal 2009 weiter rückgängig. Nur in 18 von 152 Metropolen haben die Preise leicht angezogen. Der mittlere Verkaufspreis beträgt jetzt $169,900, das entspricht einem Rückgang von 13.8 Prozent zum Vorjahreszeitraum.

Diese ernüchternden Zahlen werden eine allzu rasche Erholung auf den weltweiten Finanzmärkten nicht zulassen. Umso erstaunlicher ist der gegenwärtige Höhenflug bei den Börsen. Wie dramatisch die Lage gerade bei den Finanzdienstleistern nachwievor ist zeigt sich am Umstand, dass der Mortgage Riese Freddie Mac erneut um 6.8 Milliarden Dollar staatliche Hilfe angesucht hat, nachdem im ersten Quartal 2009 ein Verlust von 9.9 Milliarden Dollar eingefahren wurde. Im Vorjahr waren es noch vergleichsweise mickrige 149 Millionen. Freddie Mac hat insgesamt 51 Milliarden Dollar an Staatshilfen angefordert. Die Tochterfirma Fannie Mae hat erst vergangene Woche ebenfalls um 19 Milliarden Dollar zusätzlicher Steuergelder angesucht, was die Gesamthilfe für beide Konzerne auf 85 Milliarden Dollar bringt.

Die Regierung rechnet mit einer Gesamthilfe von 173 Milliarden Dollar für die beiden größten Hypotheken-Finanzierer des Landes. Um die Krise nicht noch schlimmer werden zu lasse, werden die Pläne der Regierung, 9 Millionen Hypotheken zu modifizieren, wohl umgesetzt werden müssen. Dagegen sträuben sich aber die Finanzdienstleister, die auf die Einhaltung ihrer Verträge bestehen. Es ist halt leichter mit Steuergeldern die leeren Kassen aufzufüllen als Fehler einzugestehen.

Written by Alfred

13. May 2009 at 11:45 am