US mortgage carnage

[Uncle Festivus]

It's funny how the rules change almost daily when the music stops. Talk about creative accounting. But, the market loved it, and the shares go up. The Lemmings still can't see that the emperor hasn't any clothes on!

So what is 'negative fair value'?

Plot summary

An emperor who cares too much about clothes hires two swindlers who promise him the finest suit of clothes from the most beautiful cloth. This cloth, they tell him, is invisible to anyone who was either stupid or not fit for his position. The Emperor is nervous about not being able to see the cloth himself so he sends his ministers to view it. They see nothing yet praise the cloth. When the swindlers report a suit of clothes has been fashioned, the Emperor allows himself to be dressed in their creation for a procession through town. During the course of the procession, a small child cries out, "But he has nothing on!" The crowd realizes the child is telling the truth and begins laughing. The Emperor, however, holds his head high and continues the procession.

May 14 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage-finance company, reported a smaller loss than analysts estimated after accounting changes reduced charges by at least $2.6 billion.
Without the use of two new accounting rules, Freddie Mac would have posted a loss of at least $1.7 billion, analysts said. A change in the way the company values some assets that aren't traded reduced credit losses by $1.3 billion, while a separate rule that lets the company pick and choose which assets to measure contributed an equal amount, Freddie Mac said.

...

Financial Accounting Standard 157 allows companies to estimate a value on holdings that aren't traded. Freddie Mac increased its Level 3 assets under FAS 157 to $156.7 billion, or 23 percent of its assets, from $31.9 billion as of December. The company also adopted FAS 159, which lets it pick which financial assets and liabilities to measure at fair value through earnings.

...

Chief Executive Officer Richard Syron said the new accounting better reflects ``the underlying performance of our business'' as the market continues to deteriorate.

Freddie also reported that the "fair value," or estimated market value, of its net assets was a negative $5.2 billion as of March 31, compared with a positive $12.6 billion three months earlier. That means the estimated market value of assets falls short of estimated liabilities, largely stemming from the costs of mortgage defaults. [Chief financial officer] Mr. Piszel said the negative fair value reflects current distressed prices for mortgage securities and has "no impact" on the operations of a company like Freddie that is a long-term holder of mortgages.

 

[wayneL]

It's funny how the rules change almost daily when the music stops. Talk about creative accounting. But, the market loved it, and the shares go up. The Lemmings still can't see that the emperor hasn't any clothes on!

You have to have lived in Southern California to understand this.

In SoCal, you must have a "story" about yourself. If you don't have one, make one up. If you do, embellish luxuriantly.

Everybody intrinsically knows that it's all BS, but they all trade off it anyway. The best story wins.

 

[AJP]

First time post so be gentle please
I am trying to make some sense out of the current market gains...
I have sold my property looking for an entry and expecting serious carnage yet I dont think we have seen it all.
Where is the restof this $1 trillion mortgage fiasco. From what I can gather we have only realised 1/5 of it.
Yet the market has risen over 10% since Mar 08.
Am I being impatient?
Is it around the corner?
I cant bloody see it!!!
I have looked at the DJIAA so much my eyes are going square and I still cant find it?

 

[Uncle Festivus]

First time post so be gentle please
I am trying to make some sense out of the current market gains...
I have sold my property looking for an entry and expecting serious carnage yet I dont think we have seen it all.
Where is the restof this $1 trillion mortgage fiasco. From what I can gather we have only realised 1/5 of it.
Yet the market has risen over 10% since Mar 08.
Am I being impatient?
Is it around the corner?
I cant bloody see it!!!
I have looked at the DJIAA so much my eyes are going square and I still cant find it?

The real world (US housing bust) & the stock market are 2 different things . The stock market just hasn't 'priced it in' yet?

 

[Uncle Festivus]

House prices are falling even faster than during the Great Depression

“A DESTABILISING contraction in nationwide house prices does not seem the most probable outcome...nominal house prices in the aggregate have rarely fallen and certainly not by very much.” Alan Greenspan's soothing, if rather verbose, words on America's housing market in 2005 rank high on history's list of infamous predictions. But to be fair, most American economists shared his view that it was highly unlikely that average nationwide home prices would drop. That was the sort of thing that happened only during a deep depression, like the 1930s.

Unfortunately, new figures this week reveal that house prices have already fallen by more over the past 12 months than in any year during the Great Depression. The S&P/Case-Shiller national index fell by 14.1% in the year to the first quarter. Admittedly, other property indices show smaller drops, but most economists now favour this measure. The index goes back only 20 years, but Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back more than a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, at the worst point of the Depression.

And things are even worse than they look. In the deflationary 1930s, America's general price level was falling, so in real terms home prices declined much less than they did nominally. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year. In nominal terms, the average home is now worth 16% less than at the peak in 2006, and the large overhang of unsold houses suggests that prices have further to fall. If so, this housing bust could well see a bigger cumulative fall in prices than the 26% real drop over the five years to 1933. Most people would call that a pretty destabilising contraction.

http://www.economist.com/business/displaystory.cfm?story_id=11453745

 

[dhukka]

Some particularly ominous signs from the latest FDIC report. The chart below shows that despite a large boost to loan loss reserves (blue line) they are still not keeping pace with amount of non-current loans (green line) which results in a lower coverage ratio (red line). In fact the coverage raito has halved compared to three years ago now running below 100%.

From the report:

Loan-loss reserves increased by $18.5 billion (18.1 percent), the largest quarterly increase in more than 20 years, but the larger increase in noncurrent loans meant that the coverage ratio fell from 93 cents in reserves for every $1.00 of noncurrent loans to 89 cents, the lowest level since 1993. "This is a worrisome trend," [FDIC Chairman Sheila C. Bair] said. "It's the kind of thing that gives regulators heartburn."

She added, "The banks and thrifts we're keeping an eye on most are those with high levels of exposure to subprime and nontraditional mortgages, with concentrations of construction loans in overbuilt markets, and institutions that get a large share of their revenues from market-related activities, such as from securities trading."

Far from out of the woods yet, me thinks.

 

[explod]

Some particularly ominous signs from the latest FDIC report. The chart below shows that despite a large boost to loan loss reserves (blue line) they are still not keeping pace with amount of non-current loans (green line) which results in a lower coverage ratio (red line). In fact the coverage raito has halved compared to three years ago now running below 100%.

From the report:



Far from out of the woods yet, me thinks.

I am bemused by the rhetoric of the last few days. Where we are going now has been spelt out for more than 7 or 8 years now and started in the 70's when the USA became dependant on paper money.

Blame game at the moment and Bernanke talking tough, .........laughable, there is no value left in the bag. Not sure how soon, (but not far away, and watch any space) Wall Street will be one of the next deserts.

The financials, get your money out of the bank and into something you can either live on or exchange for a livelyhood. (plot of dirt to grow vegies with a water supply could be good)

 

[ithatheekret]

What I see as the joke of all jokes with regards to the financial sector , is that no matter what they are saying or attempting to do , they are still extremely under capitalised to operate in the current conditions .

Just a minor mishap ......... that's been around for years and remains to be a stumbling block turned hurdle , soon to be a high jump , after that they'll need a pole to vault with ...............

The first thing I expect the Dems to foster in will be the capital gains tax , a quick punch to the ribs and a few jabs at traders wealth creation initiatives .

 

[finnsk]

This is from Los Angeles Times
http://www.latimes.com/news/opinion/la-oe-weiner4-2008jun04,0,3578069.story

The primary reason for this explosion is, in a word, oil. As its price has soared from less than $25 a barrel in 2002 to more than $125 a barrel today, the value of sovereign wealth funds held by oil-rich nations has skyrocketed. And this trend isn't expected to change any time soon.

And the world dit not learn anything from the oil crisis ind 1973

The new power of SWFs has been on graphic display during our recent mortgage crisis. They've essentially rescued the international financial system by injecting tens of billions of dollars into troubled banks. Citigroup, for instance, raised about $20 billion from a consortium of SWFs from Abu Dhabi, Kuwait and Singapore. UBS secured nearly $10 billion from a Singapore fund that now controls 9% of the bank. Merrill Lynch took in about $11 billion from SWFs from Kuwait, Singapore and South Korea. And even august Morgan Stanley got $5 billion from China's SWF.

Does this mean USA is slowly giving control to other contries in other words, he who controls the money controls the people

The trouble is, we don't know. And that raises perhaps the most important question of all: What if the cure to our mortgage crisis is more deadly than the disease itself?

And will all this lead to a new world war? hope not.

 

[explod]

This is from Los Angeles Times
http://www.latimes.com/news/opinion/la-oe-weiner4-2008jun04,0,3578069.story


And the world dit not learn anything from the oil crisis ind 1973

Does this mean USA is slowly giving control to other contries in other words, he who controls the money controls the people

And will all this lead to a new world war? hope not.

It is what happenned to Germany in the 20's and it was the US who were then doing the lending. To keep business rolling.

China too, is hoarding depreciating US dollars to keep the exports going. Except now the US have almost stopped the imports, so who is going to support the US$ now.

The US lost control a long time ago, they just dont' want everyone to know.

 

[sassa]

A report today by the Mortgage Bankers Association shows the delinquency rate for all outstanding mortgages jumped to 6.3% from 5.82% three months ago. Foreclosures now total 1% of all mortgages, the reports said.

Well, look, on the surface 1% doesn't sound so bad, and neither does 6.3%. After all, a little more than 93% of all mortgages are not behind or in foreclosure, right? By focusing on foreclosures we're basically focusing on the tombstones in the cemetery and ignoring the increasingly sick population that may be headed there.

According to Moody's Economy.com, the number of homeowners with negative equity as of the first quarter of this year was 8.5 million. Now, we're starting to get to real numbers. Factor in even the most modest estimates of further home price declines and that number with negative equity will continue to expand. Any acceleration puts further pressure on that negative equity number. And even a flat lining of prices will still require years for that equity situation to improve, and that makes the further assumption that those with negative equity don't capitulate and add to the already bloated inventory of homes.

In short, the bottom line is that just as economists (and former Fed Chairmen) praised the "wealth effect" and its contribution to consumer spending, so too should we expect the negative wealth effect to create a long-lasting drag over the next few years. This is part two of the debt crisis as it spreads from Wall Street to Main Street. Part three is when it echoes back to Wall Street again

http://www.minyanville.com/articles/fed-lacker-mortgage-continentla-cal-food/index/a/17445

 

[Aussiejeff]

This is from Los Angeles Times
http://www.latimes.com/news/opinion/la-oe-weiner4-2008jun04,0,3578069.story


And the world dit not learn anything from the oil crisis ind 1973

Does this mean USA is slowly giving control to other contries in other words, he who controls the money controls the people

And will all this lead to a new world war? hope not.

"When the going gets tough, the tough get going!"

When the US economy was on it's knees after the Great Depression, WW2 provided the spark to rekindle it back to life...... As so many other "major world economies" have found over the millenia, a rally cry to WAR has often been the salvation of an administration that is losing control.

"IF" GWB declared war against Iran and invoked Emergency Powers, could he remain as President and Commander-In-Chief "until such time as the threat to America is neutralised"? The more volatile the tipping of the world economic scales, the more likely the "unlikely" will occur.... IMO


AJ

 

[Uncle Festivus]

Looks like mother nature will have to help get rid of the glut of new housing in the US?

http://geology.com/usgs/hurricane-ike-pictures.shtml

 

[explod]

"When the going gets tough, the tough get going!"

When the US economy was on it's knees after the Great Depression, WW2 provided the spark to rekindle it back to life...... As so many other "major world economies" have found over the millenia, a rally cry to WAR has often been the salvation of an administration that is losing control.

"IF" GWB declared war against Iran and invoked Emergency Powers, could he remain as President and Commander-In-Chief "until such time as the threat to America is neutralised"? The more volatile the tipping of the world economic scales, the more likely the "unlikely" will occur.... IMO


AJ

Yep, very interesting. Prior to WW2 Germany was on its knees and its debt was mostly to the US. Today the US is falling to its knees and a great deal of its debt is to China. So yep it may bring out the bad boy indeed.

As Sir Winston said, never, ever, ever, ever, ever give up; by george

 

[lumpdum]

No one will allow the obese giant to go hungry for long.
As much as some are enjoying it's discomfort, most need the monster fed.
Australia & many other industrialised countries adopted its unfortunate
monetary policies/practices.The pig is squealing & many can hear it.

 

[Uncle Festivus]

New data also showed U.S. house prices tumbled nearly 19 percent in February from a year earlier but it was the first time in 16 months the slide did not set a record, according to the Standard & Poor's/Case-Shiller Home Price Indices.
The numbers bolstered a view that the recession-hit U.S. economy is at least reaching bottom, even though huge problems in the financial sector and severe job losses mean growth may still be a distant prospect.

Are we still on the same planet here? This is regarded as good news? Something about bottom callers..........?

"The panic phase is behind us with the consumers. The outlook is not as bad," said Jonathan Basile, an economist at Credit Suisse in New York. "By itself, it's still not a good level. For there to be more improvement, this move has to be confirmed."

Yeh, right, and 700k per month of newly unemployed are all lining up to buy new homes from the glut of 9 months backlog. Dream on.......woops, forgot you were an economist and that is part of your job description

 

[metric]

Economic casualties pile into tent cities

Tent cities and shelters from California to Massachusetts report growing demand from the newly homeless. The National Alliance to End Homelessness predicted in January that the recession would force 1.5 million more people into homelessness over the next two years. Already, "tens of thousands" have lost their homes, Alliance President Nan Roman says.

conservative estimate?

Marshall feels ill at ease in the camp and has trouble sleeping, and not just because of the armadillos that burrow under his tent. "I'm scared," he says. "If I can't find a job, where do I go next?"

At this point, he has lowered his expectations. "I don't expect ever to make $50,000 a year working in the auto industry, but just enough to survive, have my own place, buy my own food, my own clothes," he says. "What every American would expect."

it seems the king will get his wish of cheaper western labour....


http://www.usatoday.com/news/nation/2009-05-04-new-homeless_N.htm?loc=interstitialskip

 

[Uncle Festivus]

Another minor fact. As most, if not all, the mortgages in the US are non recourse it could mean that those who have defaulted on their loans ie just walked away, will find it very hard to obtain house finance if/when things get back to 'normal' as their credit rating will have been tarnished. It would basically be up to the lender to decide if they deserve another chance to go into debt again. So, each month of new defaults, which hasn't peaked yet, put's more people on the bad credit list of future housing loan denial?

 

[Uncle Festivus]

This one's gone under the radar, either that or it's another case of irrational ignorance....?

BOSTON (MarketWatch) -- Fannie Mae on Friday reported a first-quarter loss of $23.2 billion, or $4.09 a share, compared with a loss of $2.2 billion, or $2.57 a share, in the year-earlier period. The mortgage-finance giant, which has been placed in government conservatorship, said its quarterly loss was driven by $20.9 billion in credit-related expenses, securities impairments of $5.7 billion and fair value losses of $1.5 billion. Fannie said its results were hurt by "persistent deterioration in housing, mortgage, financial and credit markets."

 

[kransky]

artificially holding up house prices while people loose jobs, incomes fall... mmm.. shock horror it leaves some people absolutely farked... living in tents... etc etc..