Saturday, May 29, 2010

CHART OF THE DAY: One Huge Housing Bubble That's About To Pop

Joe Weisenthal and Kamelia Angelova May 28, 2010, 12:58 PM 4,320 22

In addition to all the ructions going on in Europe, this was the week that the world started getting acquainted with the precarious situation in Australia -- a highly indebted country with full-on exposure to China.

Among the country's problems? A massive housing bubble that hasn't popped.

The chart above comes courtesy of Steve Keen's Debtwatch, and it's fairly self-explanatory

Read more:

Friday, May 14, 2010

NY AG Investigates Eight (8) Big Banks for Fraud in Mortgage Securities (Including $hitiGroup!)

NY attorney general investigating eight banks
Thu May 13, 4:46 am ET

WASHINGTON (Reuters) – The New York attorney general has begun an investigation into eight banks to determine whether they provided misleading information to agencies that rate mortgage securities, The New York Times reported on Thursday.

New York Attorney General Andrew Cuomo's office issued subpoenas late on Wednesday notifying the banks of his investigation, the Times reported on its Web site, citing two people with knowledge of the probe.

According to the report, the probe's targets are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch, now owned by Bank of America.

The inquiry by Cuomo suggests he thinks the rating agencies may have been duped by one or more of the targets of his investigation, the report said.

The Times said spokespeople for Morgan Stanley, Credit Suisse and Deutsche Bank declined to comment and other banks did not immediately respond to requests for comment.

The companies that rated the mortgage deals were Standard & Poor's, Fitch Ratings and Moody's Investors Service, the report said.

Cuomo was also interested in ratings agency employees hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, the newspaper reported, citing the sources, who were not authorized to discuss the matter publicly.

(Reporting by JoAnne Allen; editing by Todd Eastham)

$hiti Gets "Nice" (All of a Sudden)

Well I got a call today (out of the blue) from Liz at $hiti-Banks Loss Mitigation Dept who, informs me now that it is not necessary for us to submit any further paperwork! "What?" I said to her, "This is wonderful news." It is particular wonderful when you consider they were asking for copies of a document that we just didnt have (hubbies 1099) which of course, he sent into the IRS when he filed his income taxes. I'll never forget $hiti's remarks when they learned that we didnt make a copy of it before we sent it out. "Most people," they told me, "make copies of their documents (scheduals and all) before they send them out." I had to remind her that "we" are not "most people." So now it turns out after all that those documents would not be necessary, which is a good thing because if $hiti had insisted we get a copy for them, it it would have taken another month or more to get,..."besides," I reminded them, "you have all the current info on file and nothing much has changed since then." $hiti said that they can work with they have, and they would complete the process within a matter of days. I asked if $hiti was leveling late charges or any other kind of penalty upon us during the course of these negotiations and I was assured by Liz that they are not......she informed me also that some of the late charges and penalties for our arrears would be waived. Isnt that grand of them!?
Now there is nothing left for us to do except sit and wait for $hiti to finalize "our plan."
I was feeling pretty good about "winning the $hiti War" with my "hard line" stance against them when I opened my mail this morning to find the NY Attorney General might have had something to do with $hiti's "nice." He is what the headlines said:

NY Attorney General Investigates Eight Banks for Mortgage Fraud
(including $hiti!)

Thank you Andy!

Monday, May 10, 2010

Update on Our $hiti Loan Modification Plan

May 10, 2010: Well we are in the eighth (8th) month of a three (3) month probationary loan modification plan. We did get a letter after the third month "congratulating" us for successful completion of that.....So why is our plan not finalized yet, even though we have been sending payments regularly since we entered into "the plan?" Part of the hold up was on our part because we refused to sign the documents committing to a payment plan until $hitifinancial answered some important question we had. Meanwhile we just kept sending in the payments marking in the memo space of the checks " FOR (this months) PAYMENT ONLY PLEASE! Because they had been taking our payments and applying them to our arrears instead of applying them to the current month. Of course, we would never get ahead that way in fact that "plan" would have kept digging us farther and farther into the hole. To this day I dont really know how they are applying them,...we havent received ANY statement from them over seven months!

Even so, with every payment we have sent over the last seven (7) months we sent with it a letter asking $hiti to contact us so we could discuss the questions we had regarding our plan. Not until we started CCing copies out to the Treasury Dept w/ a copy also to Barney Frank, Chairman of the House Financial Services Committee who stood before Congress a couple a year back when the $hit first hit the fan about the "financial meltdown." He was begging Congress and the American people to approve the bailout for the banks, and in his "snots & bugars" plea he promiced that the $$$ would be used to help people stay in their homes. He even went so far as to tell all the citizens of this great country of ours that if the banks gave us any problems in modifying our loans, that he wanted to hear from us. That is why I CC all my correspondence with $hitiMortgage to Chairman Barney Frank.

Well, it wasnt too long before we got a call from $hits "Loss Mitigation Dept," where we began talking to a Liz Cory. At last conversation about a week ago, she told us that we would need to send updated documents, tax forms, paycheck receipts, etc. Well I said I aint going on no more wild goose hunts or paper-chases with these people but we figured, what they fuk, as long as they are willing to work with us and keep our payments under XX amount, we may as well go ahead and give them what they want and hope that that is the end of it and we can finally finalize our plan.

Now hubbie gives me a stack of papers so large that now I am confused as to just exactly which ones I should send. As of this day I have been tryin to get ahold of Liz to ask her which ones I should send and which ones are not needed. I also wanted to ask her if I should fax them over or send regular it seems she is never in.

I just left a message on her machine that I was going to go ahead and just send her what I have and let $hiti sort it out. I also told her I would fax a set over as well. I am also going to include next months mortgage payment with the "infamous" notation on the "memo" portion of the check, along with a cc once again to the Treasury Dept and Barny Frank.

$hiti hasent even begun the foreclosure process yet, and I told them to start treating us fairly and wrap up this "loan modification" process or let the games (in court) other words shit or get off the pot. If they dont make some sort of good faith demonstration to us we are going to quit paying all together. Its getting to the point where we are owing more than the house is worth....besides, we figure with us being in a Chap 13 and all, we could squeeze two, may three years worth of "free-living" here, and what a hell of a "foreclosure party" we will have if ever it does come to that. Either way, we just dont care anymore, but the ball is definitely in their park.

CHART OF THE DAY: The Overhang That Will Smother Any Housing Recovery

Monday, May 3, 2010

Greenspan Wanted Housing-Bubble Dissent Kept Secret

First Posted: 05- 3-10 11:30 AM Updated: 05- 3-10 03:09 PM
Huffpost -

As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties--selling them quickly at higher prices."

Had Guynn's warning been heeded and the housing market cooled, the financial collapse of 2008 could have been avoided. But his comment was kept secret until Friday, when the central bank released the transcripts of Federal Open Market Committee meetings for 2004 and CalculatedRisk spotted it. The transcripts for 2005 to the present are still secret.

"The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy," Guynn warned.

But when the Fed released contemporaneous minutes of the meeting, the bank downplayed Guynn's concerns.

"Reports from some contacts suggested that speculative forces might be boosting housing demand in some parts of the country, with concomitant effects on prices, suggesting the possibility that house prices might be moving into the high end of the range that could be consistent with fundamentals," reads the minutes, which were released to the public several weeks after the meeting.

Story continues below
Note the qualifiers "might be," "suggesting the possibility," "might be," "could be." In the real world that Guynn described there is nothing whatsoever "consistent with fundamentals" that could explain "buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties."

The release of the transcripts comes at a bad time politically for the Federal Reserve, as it works to prevent Congress from authorizing the Government Accountability Office to audit the central bank.

The audit language has already passed the House, despite White House and Fed opposition, and a Senate amendment by Bernie Sanders (I-Vt.) is gaining momentum, cosponsored as of Monday morning by ten Republicans and five Democrats.

But the Fed also benefits from the timing. "Transcripts of meetings for an entire year are released to the public with a five-year lag," according the Fed's own policy. Had the transcripts been released on time, they could have influenced the confirmation of Ben Bernanke for a second term as chairman. Meanwhile, the Fed policy of releasing a full year at once deprives the public of transcripts from the first four months of 2005, which are now five years old. A Fed spokeswoman tells HuffPost those transcripts will be available at roughly this time next year.

At the same March meeting, Bernanke said that he had reviewed the transparency policies of foreign central banks and found that other banks were more forthcoming. "It seems to me that we might want to consider the possibility of providing the public with some type of regular financial stability report, perhaps as part of the Monetary Policy Report to the Congress or in some other existing venue or perhaps as a stand-alone document," Bernanke suggested. More than five years later, with Bernanke now chairman, that report has yet to be made public, though the Fed did create an inter-divisional internal working group on financial stability.

Other than the passing mention of speculation, the March minutes imply that the meeting participants had a rosy outlook on the housing bubble. "Activity in the housing market moderated in January and February from its elevated pace in the fourth quarter. Single-family housing starts and permits stepped down, although both measures remained above their average levels of the first three quarters of 2003," the minutes read. "Overall, expenditures were supported by sizable gains in real disposable personal income and increases in household wealth owing to rising home and equity prices. ... Committee members noted that activity in the housing sector, while still quite elevated, had fallen back from its extraordinary pace of late last year."

But there were indications from others that housing prices were getting out of hand. "A second concern is that policy accommodation -- and the expectation that it will persist -- is distorting asset prices. Most of this distortion is deliberate and a desirable effect of the stance of policy," said Federal Reserve Board Vice Chairman Don Kohn, meaning that low interest rates were artificially propping up housing prices. "But as members of the Committee have been pointing out, it's hard to escape the suspicion that at least around the margin some prices and price relationships have gone beyond an economically justified response to easy policy. House prices fall into this category."

The suspicion that Kohn says is hard to escape doesn't appear in the minutes; rather, it only appears in the transcripts that were released on Friday. While the House debated a measure to authorize an audit of the Fed, Kohn personally lobbied against it. He has since announced his resignation.

The president of the Federal Reserve Bank of Boston, Cathy Minehan, also voiced concerns. "New England's rate of inflation, as measured by the Boston CPI, is rising much faster than the nation's, largely because of a 6.3 percent increase in shelter costs versus a year ago. The high price of housing worries many in the region who find that hiring the skilled workers they need in health care, for example, is made even more difficult by high housing costs," she said. While conceding that raising interest rates could come with its own risks, she argued: "I think the costs to us in terms of credibility would be greater if the situation got out of hand on the upside."

Even Tim Geithner, then president of the New York Fed, raised concerns. "[T]he issue has been raised by [Federal Open Market Committee] Vice Chairman Geithner and others that our current policy stance may contribute to potential financial imbalances down the road," then-Vice Chairman Ben Bernanke said, according to the transcript, before dismissing such concerns. ("Imbalance," of course, is a gentle term to describe what the housing crash ultimately wrought.)

Three months later, participants at the June meeting were still concerned. Stephen Oliner, the Fed's associate research director, showed the committee a chart of the growing disparity between home and rent prices, the most obvious indication of a housing bubble. Roger Ferguson, a Fed vice chairman, asked about a footnote in the chart that said the graph had been adjusted to reflect biases in the trends, according to the transcript. Oliner described the adjustments as "technical."

"Had we not adjusted for them, the rent-to-price ratio would have been much lower at the end point. So it would have looked more alarming," he said. Oliner also flipped the housing line upside down so that it's not shooting off into the sky and is instead descending. "I don't want to leave the impression that we think there's a huge housing bubble. We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there's a part of the increase that is hard to explain," said Oliner.

Jeff Lacker, president of the Richmond Federal Reserve Bank, was also curious about the chart. "Just to follow up on what Roger was asking about the panel in chart three on housing valuations. In that panel the relative movement of the two measures is somewhat key to at least the intuitive persuasiveness of the argument that housing might be overvalued," said Lacker. A laugh was then had by Greenspan and the other committee members about the confusing chart.

"You can't trust them to do it right!" Greenspan cracked, according to the transcript. No reference to the chart appears in the June minutes.

Instead, the minutes reflect Greenspan and Bernanke's position that the rise in housing prices was nothing to worry about. Here's what the Fed's minutes told the public: "In housing markets, activity had remained at generally high levels, with only a few signs that rising mortgage rates were beginning to hold down sales and construction. There was evidence in some areas that inventories of unsold homes had risen. Members noted that persisting overall strength in housing might to some extent be a response to expectations of further increases in mortgage rates, implying that a slowdown might be likely later in the year."