Wednesday, August 14, 2013

Today's links

1---US Treasury Finally Admits The Truth: It's All POMO, zero hedge

Hmmmmm

2---Japan's exchange rate depreciation is not working, econbrowser

The central tenet of Abenomics appears to have failed

3---Here's Why You Need To Worry About The IPO Boom , Mark Gongloff

4---Affording a home harder for average buyer, CNN Money

Stagnant incomes, higher home prices and climbing mortgage rates made affording a home a lot more difficult for the average homebuyer during the second quarter.

Of all homes sold between April and June, 69.3% were affordable to a family earning the median income of $64,400, according to an index compiled by the National Association of Home Builders (NAHB) and Wells Fargo. That's down significantly from the first quarter, when 73.7% of homes sold were affordable and from late 2011, when affordability peaked at 78%.

Housing affordability has been hovering near historic highs for the past several years, largely due to exceptionally favorable mortgage rates and low prices during the recession," said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.

But all of that is starting to change now that both home prices and rates have been on the rise. The median price of all new and existing homes sold during the second quarter was $202,000 during the second quarter, up 9.2% from $185,000 a year earlier, NAHB/Wells Fargo reported. Meanwhile, interest rates for 30-year fixed-rate mortgages averaged 3.99% over the three month period, compared with 3.68% in the second quarter of 2012. ...

This is the first time the housing affordability index has fallen below 70% since 2008, the report said. When compared to the bubble years, housing is still considered a bargain, however. At one point in 2006, only about 40% of homes sold were affordable.

5---Softer U.S. Mortgage Rule Said to Be Proposed at End of August, Bloomberg

A new version of a rule requiring lenders to keep a stake in risky mortgages that they securitize will be proposed by U.S. regulators in the last week of August, according to two people familiar with the matter.
The 500-page draft regulation written by a panel of six agencies will replace a more stringent proposal for the Qualified Residential Mortgage rule, said the people, who asked not to be identified because the plan isn’t public. The first version drew protests from housing industry participants and consumer groups when it was released in 2011.

The plan will require banks to retain a slice of mortgages when borrowers are spending more than 43 percent of their monthly income on all of their debt. The earlier version would have required banks to keep a stake in loans when borrowers were spending more than 36 percent of their income on all loan payments and in loans with a down payment of less than 20 percent. The rule will carve out mortgages backed by Fannie Mae and Freddie Mac, one of the people said.
(No bank would issue a mortgage with such lax lending standards)

6---Your mortgage documents are fake, Salon

banks resorted to fake documents because they could not legally establish true ownership of the loans when trying to foreclose....

In order for the securitization to work, banks purchasing the mortgages had to physically convey the promissory note and the mortgage into the trust. The note had to be endorsed (the way an individual would endorse a check), and handed over to a document custodian for the trust, with a “mortgage assignment” confirming the transfer of ownership...

This reality, which banks did not contest but instead settled out of court, means that tens of millions of mortgages in America still lack a legitimate chain of ownership, with implications far into the future. And if Congress, supported by the Obama administration, goes back to the same housing finance system, with the same corrupt private entities who broke the nation’s private property system back in business packaging mortgages, then shame on all of us.

The 2011 lawsuit was filed in U.S. District Court in both North and South Carolina, by a white-collar fraud specialist named Lynn Szymoniak, on behalf of the federal government, 17 states and three cities. Twenty-eight banks, mortgage servicers and document processing companies are named in the lawsuit, including mega-banks like JPMorgan Chase, Wells Fargo, Citi and Bank of America....

The lawsuit alleges that these notes, as well as the mortgage assignments, were “never delivered to the mortgage-backed securities trusts,” and that the trustees lied to the SEC and investors about this. As a result, the trusts could not establish ownership of the loan when they went to foreclose, forcing the production of a stream of false documents, signed by “robo-signers,” employees using a bevy of corporate titles for companies that never employed them, to sign documents about which they had little or no knowledge.

Many documents were forged (the suit provides evidence of the signature of one robo-signer, Linda Green, written eight different ways), some were signed by “officers” of companies that went bankrupt years earlier, and dozens of assignments listed as the owner of the loan “Bogus Assignee for Intervening Assignments,” clearly a template that was never changed. One defendant in the case, Lender Processing Services, created masses of false documents on behalf of the banks, often using fake corporate officer titles and forged signatures. This was all done to establish standing to foreclose in courts, which the banks otherwise could not.

Szymoniak stated in her lawsuit that, “Defendants used fraudulent mortgage assignments to conceal that over 1400 MBS trusts, each with mortgages valued at over $1 billion, are missing critical documents,” meaning that at least $1.4 trillion in mortgage-backed securities are, in fact, non-mortgage-backed securities. Because of the strict laws governing of these kinds of securitizations, there’s no way to make the assignments after the fact. Activists have a name for this: “securitization FAIL.”...

By the end of 2009, private mortgage-backed securities trusts held one-third of all residential mortgages in the U.S. That means that tens of millions of home mortgages worth trillions of dollars have no legitimate underlying owner that can establish the right to foreclose. This hasn’t stopped banks from foreclosing anyway with false documents, and they are often successful, a testament to the breakdown of law in the judicial system.

7---Private mortgage insurers back in black after housing crash, CNBC

The private insurers have also benefited from the government housing bailout—the refinance program for underwater borrowers as well as the Home Affordable Modification Program. Both help borrowers make their monthly payments and stay current on their loans, although HAMP has come under fire recently as a report from the Troubled Asset Relief Program's inspector general found the program had a high re-default rate....

The private insurers also could benefit in the future as Congress prepares to wind down mortgage giants Fannie Mae and Freddie Mac. New proposals include risk-sharing on mortgage-backed securities, which could add to the insurers' traditional role of backing individual mortgages.  (Risk sharing for an insurance company. Talk about crazy!)

8---Millennials: pent-up housing demand or lost generation?, oc housing

Last year, a record 36 percent of people 18 to 31 years old — roughly the age range of the generation nicknamed the millennials — were living in their parents’ homes, according to a new Pew Research Center analysis of Census Bureau data. That compares to 32 percent of their same-aged counterparts in 2007, the year the recession began....

Being unemployed is the biggest factor associated with living with one’s parents, not surprisingly....

In any case, these higher rates of living with parents have contributed to the unusually low household formation seen in recent years.
Jed Kolko, the chief economist at Trulia, recently estimated that low household formation rates had led to 2.4 million “missing households.”
That’s equivalent to more than two years of normal household formation that have gone missing,” Mr. Kolko wrote.
These “missing households” can hold back the economy. With new households, after all, come furniture purchases and other kinds of consumer spending. Mark Zandi, chief economist at Moody’s Analytics, has estimated that under normal circumstances, each formation of a household adds about $145,000 to output that year as the spending ripples through the economy

9---FHA: The “Take This Loan And Shove It” Proposal (They Ain’t Making Loans No More), confounded interest

According to Kate Berry of American Banker, the cost of doing business with the Federal Housing Administration could skyrocket if the agency adopts a new method for calculating lenders’ liability for poorly underwritten loans that default.

The method under consideration would have the FHA examine a random sampling of each lender’s loans, calculate the percentage of loans in the sample with underwriting defects, and then extrapolate that rate to the lender’s FHA portfolio. Lenders would then have to compensate FHA for the “estimated total risk” to the agency’s insurance fund.
“If this goes through, it means it will be a lot more expensive to be an FHA lender,” says Phillip Schulman, a partner at the law firm of K&L Gates. “If a lender runs the risk that every time he makes a mistake it will be multiplied against his entire portfolio, he has to be very cautious.”

10---We Don't Need a New System So the Banks Can Rip Us Off Again--The Future of Fannie and Freddie, Dean Baker, counterpunch

After three years, and dozens of industry comments, the SEC issued its reportsaying that it lacked the ability to pick bond rating agencies. Therefore we’re back with the cesspool we had before the crisis.  In short, there is no reason to believe that current regulatory structure will protect us from the worst abuses of the bubble years...


While we don’t know the details of what the new system will look like, the basic story is clear. Private banks like Goldman Sachs, Citigroup, Bank of America will again issue mortgage-backed securities (MBS). Unlike the MBS of the bubble years, these new issues will carry an explicit government guarantee.

In this new system there will be a requirement that investors in the MBS absorb some loss before the guarantee kicks in. This is supposed to ensure that they don’t game the system by pumping out MBS filled with junk mortgages. And the whole system will be carefully regulated.
Readers can be excused if they are feeling some seriously unpleasant déjà vu reading this. Yes, we have seen this movie before and we might already be in the second reel.

In the immediate aftermath of the crash there was a widespread insistence that MBS issuers would have to keep a substantial stake in the mortgages they put into MBS. Some were arguing that they should have to hold 20 percent of these mortgages on their own books. This quickly got whittled back to a much more modest 5 percent.

Then it was decided that high-quality mortgages with down payments of more than 20 percent would not require any reserve. The industry decided this was still too restrictive. They lobbied to have the requirement weakened so that issuers don’t have to hold reserves against mortgages with as little as 5 percent down, even though these mortgages defaulted at 3-4 times the rate of mortgages with 20 percent down in the years preceding the crisis.

11---The Fed’s Confession: We Can Avoid A Crash At The End Of QE If Everybody Believes That Everybody Believes In A Mirage...., Testosterone Pit

CASE CLOSED--SF Fed: QE doesn't do Jack! Duh!

12---Report: 97 percent of new US jobs are part-time, wsws
Won't find this in the BLS report

13---The Australian housing market: A social disaster and a financial crisis in the making, wsws

14---The FOMC is running out of excuses to maintain current policy, sober look

Retail up.

15---Credit as percentage of banks' balance sheets lowest in 40 years, sober look
 
Loans and leases (of all types) as percentage of US banks' total balance sheets continue to decline and are now at the lowest levels in at least 40 years (since this data has been kept).

Source: FRB (40 years)

Credit is being displaced by cash (reserves), as the Fed's securities purchases result is further dilution of US banks' balance sheets. While some believe this will motivate banks to accelerate lending, as the chart below shows, it hasn't. Credit expansion in the US has been slowing and is well below pre-recession levels
 






 

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