Monday, March 17, 2014

Today's links

Today's quote:   "As the saying goes, Comrade Wolf knows whom to eat, he eats without listening and he's clearly not going to listen to anyone." Vladimir Putin, talking about US invasion of Iraq, 2006, Moscow Times

1--ARMs are back! Reverse mortgages too! Is this housing bubble 2.0?, daily ticker

In the fourth quarter, 31% of mortgages between $417,000 and $1 million were adjustable vs. fixed-rate, up from 22% a year earlier and the highest percentage since the third-quarter of 2008, The WSJ reports. For mortgages above $1 million, 61% were adjustable, up from 56% a year earlier.

  • In 2013, $15.3 billion in reverse mortgages loans were issued -- via a government-backed program that allows seniors to borrow against the equity in their homes -- up 20% vs. 2012, Reuters reports.
  • Both trends have raised alarms that the "bubble" mentality of the early 2000s is making a comeback, most notably the revival of adjustable-rate mortgages (ARMs).

    2--Return of subprime, rob chrisman

    New Penn has expanded its Government guidelines to allow FICOs down to 580, higher DTIs, and previously modified mortgages.  For FHA products, condos, down payment assistance, and flipped properties are now permitted, while FHA Streamline transactions allow up to 55% DTI and LTVs/CLTVs up to 97.5% and 125%, respectively.  Standard VA borrowers (10-, 15-, 20-, and 30-year Fixed and 3/1 and 5/1 ARMs) may have a DTI up to 60% and take cash out with LTVs/CLTVs up to 100%.  For VA IRRRLs, borrowers may have a FICO score as low as 620, subject to a maximum DTI of 50% and maximum LTV/CLTV of 95%, and transactions with FICO scores of 700 and over do not require an appraisal or AVM...

    Mellow Ruse 17-03-2014, 12:01
    Some lenders are only lending QM loans, others are testing the waters outside of QM. I’m not sure what the case is for New Penn. The FICO score doesn’t affect QM eligibility, so it would depend on the debt ratio and the upfront fees that are charged.
    These are risky but the way FHA insurance is set up, if you are lending enough “non-risky” loans to offset the risky ones, they are unlikely to punish the lender. Also, if the lender’s rate of default is in line with industry standards, they are unlikely to punish them. With so many lenders loosening standards at once, it sets the bar lower for the industry as a whole, so it’s much less likely that HUD would action any individual lender for higher defaults, as long as their default rate does not exceed the new lower bar set by the industry as a whole.

    3---Markets fear Russia has cut US treasury bill holding over Ukraine crisis, Guardian

    Transfer of more than $100bn out of US prompts speculation Russia is moving funds out of reach of possible sanctions

    4---Putin to Address Russian Parliament on Crimea Accession, ria

    5---Nasa-funded study: industrial civilisation headed for 'irreversible collapse'?, Guardian

    Natural and social scientists develop new model of how 'perfect storm' of crises could unravel global system...

    Modelling a range of different scenarios, Motesharri and his colleagues conclude that under conditions "closely reflecting the reality of the world today... we find that collapse is difficult to avoid." In the first of these scenarios, civilisation:
    ".... appears to be on a sustainable path for quite a long time, but even using an optimal depletion rate and starting with a very small number of Elites, the Elites eventually consume too much, resulting in a famine among Commoners that eventually causes the collapse of society. It is important to note that this Type-L collapse is due to an inequality-induced famine that causes a loss of workers, rather than a collapse of Nature."
    Another scenario focuses on the role of continued resource exploitation, finding that "with a larger depletion rate, the decline of the Commoners occurs faster, while the Elites are still thriving, but eventually the Commoners collapse completely, followed by the Elites."
    In both scenarios, Elite wealth monopolies mean that they are buffered from the most "detrimental effects of the environmental collapse until much later than the Commoners", allowing them to "continue 'business as usual' despite the impending catastrophe." The same mechanism, they argue, could explain how "historical collapses were allowed to occur by elites who appear to be oblivious to the catastrophic trajectory (most clearly apparent in the Roman and Mayan cases)."

    6---Crimea declares independence, seizes property, AP

    7---Russia calls on Ukraine to be a federal state, AP
    Russia's foreign ministry is calling on Ukraine to become a federal state and call fresh elections.
    In a statement posted on Monday the ministry urged Ukraine's parliament to call a constitutional assembly which could draft a new constitution to make the country federal, handing more power to its regions. 
    The foreign ministry said the proposals are part of its efforts to ease the tensions in Ukraine by diplomatic means.
    Moscow insisted that Ukrainian regions should get broader autonomy and that the country should adopt a "neutral political and military status."

    8---Paramilitaries Armed With C-4 Detained in Venezuela, venezuelanlsis

    9-- RUSSIAN ARMY CHOIR "Kalinka", you tube  

    10--New doomsday poll: 99.9% risk of 2014 crash, marketwatch
    Commentary: Black-swan crisis warning for now through mid-April

    11--Yellen should take away the punch bowl, marketwatch
    Opinion: The Fed should raise margin requirement for borrowing against stocks

    12--In-the-know insiders are dumping stocks, marketwatch
    Opinion: Extreme bearishness among executives is a sell sign

    13---Household Debt and the Great Depression, house of debt

    The thesis of this paper is that the existing depression was due essentially to the great wave of credit expansion in the past decade.”
    He then meticulously documented data on the stunning growth in borrowing by households during the 1920s. As is common in the run-up to severe economic downturns, there was a tremendous growth in mortgage debt. “The great field of credit expansion in the last decade lies in the realm of urban real estate mortgages”, Persons wrote. In nominal terms, outstanding mortgage debt grew by more than eight times from 1920 to 1929, according to Persons.

    Persons also highlighted the rise in installment debt, or consumer debt used to purchase new furniture, clothing, sewing machines, and cars. Martha Olney at Berkeley examined the rise in purchases of cars and other durables during the 1920s, and concluded that “societal attitudes toward borrowers changed radically between 1900 and 1920; by the mid-1920s, buying on credit was considered normal, not sinful.”

    Persons concluded his 1930 article with a statement that is eerily similar to many we here today: “The past decade has witnessed a great volume of credit inflation. Our period of prosperity was based on nothing more substantial than debt expansion.”

    Both the Great Depression and our recent Great Recession were preceded by large increases in household debt driven by new lending technologies. The 1920s had the installment loan; the mid-2000s had the subprime mortgage loan. Is it a coincidence that the two most severe recessions in the last 150 years were preceded by a dramatic expansion in household debt driven by new lending technologies? This is a central question of our book

    14---Corporate Interests Behind Ukraine Putsch, consortium news

    15---Philip Pilkington: Keynes’ Liquidity Preference Trumps Debt Deflation in 1931 and 2008
    naked capitalism

    Never before has there been such a world-wide collapse over almost the whole field of the money values of real assets as we have experienced in the last two years. And, finally, during the last few months—so recently that the bankers themselves have, as yet, scarcely appreciated it—it has come to exceed in very many cases the amount of the conventional “margins.” In the language of the market the “margins” have run off. The exact details of this are not likely to come to the notice of the outsider until some special event—perhaps some almost accidental event—occurs which brings the situation to a dangerous head. For, so long as a bank is in a position to wait quietly for better times and to ignore meanwhile the fact that the security against many of its loans is no longer as good as it was when the loans were first made, nothing appears on the surface and there is no cause for panic.

     Nevertheless, even at this stage the underlying position is likely to have a very adverse effect on new business. For the banks, being aware that many of their advances are in fact “frozen” and involve a larger latent risk than they would voluntarily carry, become particularly anxious that the remainder of their assets should be as liquid and as free from risk as it is possible to make them. This reacts in all sorts of silent and unobserved ways on new enterprise. For it means that the banks are less willing than they would normally be to finance any project which may involve a lock-up of their resources. (p93-94)

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