Housing Bubble Bursting?

[moh malekpour]

Bernanke Says Hard to Separate `Good,' `Bad' Lending

http://www.bloomberg.com/apps/news?pid=20601087&sid=awOrvpjka0VI&refer=home

Federal Reserve Chairman Ben S. Bernanke said lower-income neighborhoods that were shut out from credit 30 years ago must now cope with ``bad'' lending, an issue that will challenge regulators for a while.

``Recent problems in mortgage markets illustrate that an underlying assumption of the CRA -- that more lending equals better outcomes for local communities -- may not always hold,'' Bernanke said in a speech about the Community Reinvestment Act of 1977. ``How to try to differentiate `good' from `bad' lending in the CRA context is an issue that is likely to challenge us for some time.''

CRA Reviews

Bernanke, speaking at the central bank's Community Affairs Research Conference in Washington, said reviews under the CRA could give more weight to whether a lender provides services such as counseling and financial education.

Last week, Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said at a hearing that the Fed failed to act on early signs of trouble in the subprime mortgage market. Members of a House subcommittee levied similar criticisms at the Fed and other regulators during a March 27 hearing.

``The CRA is clearly far from perfect,'' Bernanke said. Other issues to deal with in coming years including how to define a bank's ``local community'' given that many banks have regional, national or Internet domains, and whether the law should be extended to cover non-bank lenders, the chairman said.

It is not hard to separate bad lenders from good if Federal Reserve regulators get serious and implement the law. Some banks have used the CRA excuse that says more lending is better for their own advantage not for the advantage of low or middle-income communities. Instead of giving some advices to unsophisticated borrowers, they have induced tricky loans to low income communities with the name of more lending, the better. What good it does if the borrower can borrow today and lose it tomorrow and left with a ruined credit history. Banks are already getting advantage from FDIC protection and access to Federal Reserve depository. Isn’t that enough incentive for them to spend few minutes with their clients and evaluate their lending capacity instead of throwing them in to sea of debts and then say you signed the paper.
The CRA enactment in the 1977 was great legislative act to eliminate lending discrimination and redlining but its new provisions that let the financial institutions to reduce their compliance with the law for achieving the CRA goal was not productive. Lenders took short cut in evaluating borrowers by credit history scores, AVM property valuation and automated underwriting with the excuse of fast performance and low cost of borrowing and you can see what is the result.
None bank lenders as well as companies owned by banks or bank holdings also should to comply with CRA and be responsive to Federal Reserve regulatory enforcements and FIRREA.

 

[Greg Bell]

Housing slow down starting to cost jobs..In Canada..Who's next??
MONTREAL -- Kruger Inc. is slashing more than 1,000 jobs as it indefinitely shuts four sawmills in Quebec to cope with the impact of the drop in the demand for lumber and the strength of the Canadian dollar.

Montreal-based Kruger said 624 workers will be out of a job June 29 at two mills on the North Shore -- Ragueneau and Forestville -- as well as a related processing plant in Longue-Rive.

Another 233 jobs will be cut with the shutting of a sawmill in Parent, in the central Quebec region of the Upper Mauricie, while 170 jobs will disappear at Kruger's mill in Launay in the northwestern Quebec region of Abitibi.

The shutdowns at Parent and Launay are slated for April 5.

 

[Terrel L. Shields]

It is not hard to separate bad lenders from good if Federal Reserve regulators get serious and implement the law.

amen. And certainly Dodd is correct in saying that they knew these were going to be a problem...heck, look at this thread - well over a year old. We've been harping over the excesses since about 2003-4...and it has come to past.

 

[moh malekpour]

Foreclosures Hit Record Numbers as Region Continues to Lose Jobs

http://www.washingtonpost.com/wp-dyn/content/article/2007/03/30/AR2007033002127.html

While lax lending policies have been blamed for the unfolding home-mortgage crisis across the country, the distress in the Midwest has been exacerbated by fundamental problems with the economy. The region has been devastated by a severe drop in manufacturing jobs as the U.S. automobile industry shrinks.
"There's a structural shift going on that's undermining the unionized, industrialized states, and Michigan is leading the way," said Donald Grimes, a senior research specialist at the University of Michigan. "When you talk to people in Michigan, you can tell from their voice and their demeanor that they are just depressed."
The housing bubble of recent years has burst and home prices are under pressure in many parts of the country. How far they fall will be determined in large measure by the strength of the economy, experts say, since job and income growth ultimately determine how much people can pay for housing. The U.S. economy is growing, but the pace of growth has slowed markedly of late.

States like Michigan and Ohio, struggling with their particular economic problems, illustrate just how bad things could get in the housing sector if the national economy falls into a recession. They are, moreover, politically important swing states; rising anger there over the housing situation could help determine the outcome of the 2008 presidential election.

That is what the slow economy can do to the housing market.

 

[moh malekpour]

Borrowing Trouble

http://www.nytimes.com/2007/04/01/business/yourmoney/01nova.html?pagewanted=1&_r=2&ref=business

They reluctantly signed the documents because they had pressing commitments to pay debts and home renovation contractors. It was only later that they discovered that their mortgage broker was paid a commission of $5,344 by NovaStar to put them into the riskier and more expensive loan. That commission added $200 to their monthly mortgage bill.
The Shermans filed suit in 2005 against NovaStar, a lender based in Kansas City, Mo. The suit is now part of a federal class-action lawsuit accusing the company of bait-and-switch practices that increased borrowers’ costs. NovaStar, founded by a pair of entrepreneurs who rode the real estate wave hard by specializing in financing risky borrowers, faces litigants next month when the lawsuit goes to trial in federal court in the Western district of Washington.
Documents in the case show a raft of NovaStar customers accusing the company of using hidden commissions as early as 2003 to generate high-cost loans that may have run afoul of state consumer protection rules

 

[Steve Owen]

That is what the slow economy can do to the housing market.

Yes. Like I've been saying.

 

[Greg Bell]

More recent histories of these extraordinary events include Martin Fridson's It Was a Very Good Year and Manias, Panics and Crashes by economist Charles Kindleberger. Kindleberger argues that there is a consistent pattern to financial manias and panics - quite apart from the ebb and flow of the business cycle - which can be controlled or moderated. He spells out the stages of the credit cycle of boom and bust:

· The upswing usually starts with an opportunity - new markets, new technologies or some dramatic political change - and investors looking for good returns.

· It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.

· In the manic phase, investors scramble to get out of money and into illiquid things such as stocks, commodities, real estate or tulip bulbs: 'a larger and larger group of people seeks to become rich without a real understanding of the processes involved'.

· Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

 

[Greg Bell]

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Alexis de Tocqueville

 

[Pamela Crowley (Florida)]

· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

I see the beginnings of exactly this, right here, right now. Auctions of many of the vacant, year old +/- new houses, speculator purchased and now worth less than what they bought them for. Builders desperately trying to hide what they are really selling off for. The honest Realtors desperately trying to figure out how to word what's happening without actually saying, "Yes, the values have and still are declining here."


Spent an interesting hour or so in a tent of business booths at a local fair yesterday. About 5 mortgage broker booths, 3 Realtor booths. It was sad when I asked a couple of Realtors about how the prices were doing and how desperate they were in trying to not lie - actually stuttering.

A WAMU booth LO was complaining about the appraisals coming in low and how many deals they were losing to MBs using appraisers to bring it in 50-100%+ higher and being able to close the loans they couldn't. I eventually fessed up to being an appraiser with him, told him about www.MortgageFraudWatchList.org and how he could put in the addresses of the deals he's lost to highly over-valued MB ordered appraisals. He's on board because he's tired of losing deals to frauds.

I started asking about how to do at least a $50K cash back deal that I'd been hearing about. The Realtor I asked about doing this told there was no way she would be involved in doing that and that I shouldn't either. I congratulated her on the right answer. The next MB booth I came to and asked about this: They grabbed the MB company owner to talk to me and she came out from the booth to talk a little more 'privately' with me. She told me they sure could structure that for me. All it takes is talking the seller into it and the appraisal needed to cover the overage. I asked more about the appraisal and was told her appraiser was very good at doing these for them. Just couldn't get the name of the appraiser out of her. Anyway, pretty well 'guaranteed' that I could do a good number of these and that some of their LOs already owned the properties I could do this with.

How much fraud can the market take before collapsing???

 

[Dee Dee]

The next MB booth I came to and asked about this: They grabbed the MB company owner to talk to me and she came out from the booth to talk a little more 'privately' with me. She told me they sure could structure that for me. All it takes is talking the seller into it and the appraisal needed to cover the overage. I asked more about the appraisal and was told her appraiser was very good at doing these for them. Just couldn't get the name of the appraiser out of her. Anyway, pretty well 'guaranteed' that I could do a good number of these and that some of their LOs already owned the properties I could do this with.

How much fraud can the market take before collapsing???

Ironically, the buck stops when they can no longer find appraisers willing to stick their neck out on the chopping block. Apparently there is at least one left who is willing to do so. :new_2gunsfiring_v1: