Wednesday, October 6, 2010

Today's Best Reads

1--Is A 90 Day "Mortgage Meltdown" Foreclosure Moratorium Imminent As The RoboSigning Scandal Goes Mainstream?, zero hedge (video CNBC)

2--Fed, ECB throwing world into chaos: Stiglitz, Reuters

Excerpt: Ultra-loose monetary policies by the Federal Reserve and the European Central Bank are throwing the world into "chaos" rather than helping the global economic recovery, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday.

A "flood of liquidity" from the Fed and the ECB is bringing instability to foreign-exchange markets, forcing countries such as Japan and Brazil to defend its exporters, Stiglitz told reporters in a conference at Columbia University.

"The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy," Stiglitz said. "It's doing nothing for the American economy, but it's causing chaos over the rest of the world. It's a very strange policy that they are pursuing."

3--Housing Inventory Climbs Again In September, Wall Street Journal

Excerpt: In addition to sluggish sales, the increase comes from lenders dumping foreclosed homes on the market, short sale offers and sellers who can no longer put off listing a home, says Leslie Tyler, ZipRealty’s vice president of marketing.

More inventory is the last thing housing needs. Current sellers face a bleak picture: Despite record-low interest rates and falling prices, some home shoppers remain fearful of signing contracts as unemployment remains elevated. Those ready to buy may think that prices will fall further, providing little incentive to act quickly. Given tightened lending restrictions, others want to buy but cannot. Some sellers, meanwhile, can’t trim prices any further without selling for less than they owe. And the foreclosure crisis continues–and some banks have halted foreclosures, further gumming up the works. (Bleak)

4--Why monetary policy can't revive housing, Boston.com

Excerpt: In past recessions, the housing and mortgage sector, stimulated by the lower interest rates generated by an easier monetary policy, was a source of strength that led the economy out of the recession. Not this time.

Despite the fact that the easing of monetary policy has been more aggressive than in any prior recession, and included unprecedented purchases of mortgage-backed securities by the Federal Reserve, the spark has fallen on wet grass. (Tougher underwriting etc)

5--More Foreclose Sales Will Drive Down Prices, Daniel Indiviglio, The Atlantic

Excerpt: So what does this tell us about the future? First, it's pretty easy to predict is that bank repossessions will continue to increase. That's a clear trend we're already seeing. Sales have fallen considerably since the buyer credit expired, but foreclosure activity hasn't declined by nearly as much. As a result, if you assume fewer sales, but the same proportions of sales from each stage of foreclosure going forward, then more defaults will go to auction and more auctions will fail and end up repossessed by banks.

Second, if bank repossessions continue to grow, then prices will fall more aggressively. This is clear through the chart above. The U.S. average discount for bank repossessions was 34.5%, but the average discount for earlier stages of foreclosure is just 13.0%. More bank repossessions means that more buyers will be able to take advantage of those bigger discounts. And if more buyers buy homes for cheaper, then prices will fall. (Must Read)

5--Foreclosure Paperwork Scandal 'Same Process' That Fed The Housing Bubble, Arthur Delaney, Huffington Post

Excerpt: The paperwork scandal that has prompted several banks to halt evictions and review their foreclosure procedures is reminiscent of the predatory lending scheme that inflated the housing bubble.

"It's the same process, falsifying documents to make them look acceptable to someone," said Tom Domonoske, a lawyer and consumer advocate in Virginia. "They're falsifying foreclosure documents so judges will look at them and say, 'Here's an affidavit. It's signed.'"

6--Foreclosure Furor Rises; Many Call for a Freeze, New York Times

Excerpt: Last week, JPMorgan Chase and Bank of America joined GMAC in suspending foreclosures in the states where they must be approved by a judge. The judicial states do not include California or Texas. But Mr. Abbott, the Texas attorney general, told lenders in letters dated Oct. 4 that if they used so-called robo-signers — employees who signed thousands of foreclosure affidavits a month, falsely attesting that they had reviewed the material — it would be a violation of Texas law.

As a result, he wrote, “the document and therefore the foreclosure sale would have been invalid.”

The three lenders who are at the center of the controversy, GMAC Mortgage, JPMorgan Chase and Bank of America, declined to comment. Other lenders singled out by Mr. Abbott include Wells Fargo, CitiMortgage, HSBC and National City.

7--Rule of law vs. bank profits; Mortgage fraud edition, naked capitalism

Excerpt: Now that judges in some states are starting to take these dubious, potentially fraudulent measures seriously, the next line of attack is to get the more bought and paid for Federal government to intercede on behalf of the banks. As the e-mail by the Ohio Secretary shows, this is a state versus Federal rights issue. And the problem is that these solutions will be depicted as “efficient,” just as securitizations and other “innovations” were.

And while efficiency in theory is a good thing, it must always be kept secondary to the overall integrity of the system, otherwise, you run the risk of breakdown. Using dubious arguments to overturn well settled law to get the banking industry out of a monster mess it created is a Faustian bargain. It makes it abundantly clear what is really at stake here, which is the rule of law. Banks that were quick to defend unjustifiable pay deals by invoking “sanctity of contract” have no inhibition about ignoring their own contracts to pad their bottom line, and ultimately, the wallets of top executives.

Rather than deal with the considerable consequences of these abuses, the banks are prepared to bulldoze well settled state laws to give them an easy way out. And I’m not basing my view on this story alone; I had a conversation yesterday with a Congressional staffer who matter-of-factly said (but with little understanding of the underlying issues) that Congress would intervene on behalf of the industry, via its authority over national banks.

The result is that we institutionalize kleptocracy while keeping largely gutted forms of due process as theater. (Hoo-boy, another "must read")

8--On the Foreclosure Front, New York Times

Excerpt: At issue now are affidavits that a foreclosing lender must file in many states’ courts. The person signing the affidavits attests to having knowledge of important facts, like the lender’s legal standing to foreclose and the amount owed. But in a rush to process hundreds of thousands of foreclosures, it turns out that the signers at Chase and GMAC processed 10,000 or more documents a month — “robo-signing” in industry parlance — without personal knowledge of the facts.

The improprieties raise the prospect that some families may have lost their homes in a less-than-legal process, and that some buyers of foreclosed homes may not have clear title to their properties.

To the extent the suspensions ensure a process that is legal and fair, they are to the good. But delays feed uncertainty, and that could be bad for the economy. Will they result in fewer foreclosures, helping to prop up prices? Or will they create a backlog of foreclosed homes that will push prices down when they come to market?

9--Taking On China, Paul Krugman, New York Times

Excerpt: But China, the largest of these emerging economies, isn’t allowing this natural process to unfold. Restrictions on foreign investment limit the flow of private funds into China; meanwhile, the Chinese government is keeping the value of its currency, the renminbi, artificially low by buying huge amounts of foreign currency, in effect subsidizing its exports. And these subsidized exports are hurting employment in the rest of the world.

Chinese officials defend this policy with arguments that are both implausible and wildly inconsistent.

They deny that they are deliberately manipulating their exchange rate; I guess the tooth fairy purchased $2.4 trillion in foreign currency and put it on their pillows while they were sleeping.

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