I am a licensed agent (17 years) and a confirmed housing bear, but as this unfolds, I am beginning to think it could be even worse than I imagined. The foreclosures certainly look like they are going to get much worse before they get better.

The one thing that has taken me by surprise has been the extent of the "cash back" type of fraud. It seems to be extremely wide spread and will have a huge impact on how this whole thing plays out. I think we've only seen the tip of the iceberg on this one.

If I felt up to being the Newspaper's Worst Nightmare today--which I really don't, so pfft--I could quibble with some of the Enquirer piece. (An "unemployment bubble"?) But check out the right-hand sidebar. Decent information, copied directly from reputable sources, right next to the article. These people know how to use the internet. They are trying. Go Cinci! (I like your chili better'n Dallas's, too. Heh.)

I notice the Dallas article did get around to contextualizing a raw number of foreclosures compared to a rate of foreclosures, sort of, in the very last paragraph. Perhaps this is a weak compliment. It's all you get today, ink-stained wretches.

I wonder what the population adjusted forclosure data would say for Dallas. Any info on this?

I think for Colorado, at least, it's below the previous record. I don't think any place is near record foreclosures per household yet.

I think what were going to hear about mostly is record breaking numbers, but I think you've got the right way to look at it - foreclosures per household and bad loans as a percentage of all loans.

On Ohio & Indiana (maybe Kentucky too, not sure)... add rural Illinois, Missouri, etc... there are a number of contributing factors that are likely to keep it worse here than the coasts even with the lower valuations and smaller debt loads...

(1) from what I've read the 'Ohio Valley States' had some of the loosest state enforcement of reg's in the country and did it sooner than about anyone... I don't have a link but remember reading that a couple of places.

(2) far more job loses than the rest of the country... automotive suppliers are all over these states - urban & rural. I work with & call on more than a few and they have been in trouble even before the Big Three OE's troubles became obvious to MSM (B3 pushed their trouble down the supply chain as long as they could... then went to China when the supply chain buckled).

(3) plus nothing holding up values but local income - period. Who's gonna move there to bail them out? It isn't like San Diego where even if the locals tank, somebody with money will move in... 'for the weather'. Move to S Ohio or Indiana 'for the weather'? I think not.

(4) we're just a bunch of rural rubes... I can say that as I'm one also... these are 'my people'.

None of us out here saw it coming... seriously. A bunch of suckers just waiting to be fleeced and fleeced we got... from Mexico to Canada and the Rockies to the Appalachians... people forgot en masse that if it is too good to be true it is too good to be true... even if its one of your cousins (turned strip mall mortgage broker 'tycoon') who told ya'.

(5) fraud's only illegal if ya' get caught. Sorta like growing weed in the basement. Folks have always done what they thought they had to do & 'thunk about it' later - often at the state pen.

Anyway lotsa folks dabbled in 'creative financing' so they too could live like their city cousins - big mistake.

It'll be back to shining deer for entertainment instead of a refi to go to Cancun.

Why does treason never prosper, why if it does, it is not treason.

likewise it is not fraud until someone loses and figures it is important to arrest someone.

>>> and early January data suggests 2007 might exceed the records set in 1996

How do we know? Is there any particular research/data?

I've mentioned it before, but sites like realtytrac and foreclosure.com have shown some substantial increases in the past couple of weeks. I am uncertain as to their reliablity though. Especially foreclosure.com.

If foreclosures continue to rise...
Who will rise premium rates? Lenders or MBS purchasers?

I saw a blurb in our local newspaper (the Pittsburgh Post-Gazette), stating that 2006 foreclosures were a record high -- beating out the previous record set in 2005, perhaps disproving Neil Young's plaintive that rust never sleeps. Here in this belt, it does.

How's THIS for housing appreciation: I bought my home in 1991 for $179,500. The current tax-assessed value is $220,000, which may be understated by 20k-30k (that's the nature of our assessment process here in Allegheny County). AT BEST, my home has appreciated at an annual rate of 2.4%, and that's without compounding. On an after-inflation basis, that ain't so good.

Seen any well-tanned newcomers picking up Ohio RE bargains?

LOL. I live in Minnesota in the Mississippi River Valley... different state, different river valley, similar story though we haven't been hit as hard as Ohio & Kentucky - yet.

My guess is we will... we don't walk on water... well except maybe a few months of the year.

But like I said often - I do business in all those states, might as well live there too. It really is a regional problem driven by combination of low income and dumb choices... it doesn't stop at the state borders.

As for Californians cashing out and moving? 'Yes' they sure do... but from what I hear they usually look for places almost as expensive as the places they left... think Oregon, Las Vegas, Arizona, Seattle. Not too many show up in Iowa or Minnesota.

However some do - my neighbor for example. He says he lives like a king compared to what it was like on his income back in Cali... he has four kids & they own a home big enough to house them all & have cash left over to go back & visit family, save, etc.

But he also shovels snow now - we talked about that yesterday - shoveling snow. But how much of a pain is that compared to living in an cramped apartment with four (very rowdy) kids? I think its probably bearable since they have stayed two winters now.

Dear CR

I know this is something outside the topics you normally cover, but I was wondering what effect OPEC/China/other nations selling their U.S. Treasuries might have on the Federal Reserve’s ability to lower interest rates if the U.S. does have a recession?

See:
OPEC Dumps $10.1 Billion of Treasuries as Oil Tumbles (Update2)
By Bo Nielsen and Daniel Kruger
Jan. 22 (Bloomberg) -- "OPEC nations are unloading Treasuries at the fastest pace in more than three years as crude oil prices tumble, sending bond yields higher.
Exporters including Indonesia, Saudi Arabia and Venezuela, sold 9.4 percent, or $10.1 billion, of their U.S. government debt securities in the three months ended in November, according to Treasury Department data. Members of the Organization of Petroleum Exporting Countries last sold Treasuries for three straight months in June 2003.
Oil producers have surpassed Asian central banks as the largest pool of global savings, accumulating an estimated $500 billion in 2006 alone, according to research by Pacific Investment Management Co. The sales during those three months mark a reversal because OPEC countries have boosted their holdings of U.S. government bonds by 70 percent to $97 billion in the past 17 months, Treasury data show."

Best regards,

OT, ish, but it's Earnings Release Season, and I can't stay away. Here's some tidbits from Downey, my favorite California thrift stuffed to the overhead bins with Option ARMs:

"Included within loans held for investment at quarter end were $11.200 billion of one-to-four unit adjustable rate mortgages subject to negative amortization, down $1.127 billion from September 30, 2006. These loans comprised 85% of the one-to-four unit residential portfolio at year end, compared to 91% a year ago. The amount of negative amortization included in loan balances increased $44 million during the current quarter to $320 million or 2.86% of loans subject to negative amortization. During the current quarter, approximately 29% of loan interest income represented negative amortization, up from both 28% in the third quarter of 2006 and 21% in the year-ago fourth quarter."

"Non-performing assets increased during the quarter by $44 million to $110 million and represented 0.68% of total assets, compared with 0.21% at year-end 2005. Included within the current quarter increase was an $11 million commercial real estate loan to develop residential lots. While this loan is deemed collateral dependent and value impaired, no significant loss is anticipated at this time."

"While the California residential real estate market continued to show signs of weakening during the current quarter, a $956 million drop in the single-family residential loan portfolio mitigated the need to increase the allowance for loan losses. At year-end 2006, the allowance for credit losses was $62 million, comprised of $61 million for loan losses and $1 million for unfunded loan commitments which is reported in the category accounts payable and accrued liabilities. That compares with an allowance for credit losses of $36 million at year-end 2005. Net charge-offs totaled $0.3 million in the current quarter, compared with net charge-offs of $0.5 million a year ago."

NEWS RELEASE Quarter-End Results for the period ended 12/31/06

Negative amortization is "noncash" interest income. It is earned by the lender but since it isn't paid by the borrower in cash, it is added to the loan balance. Downey is one of the few who report so straightforwardly on this--I will give them that.

On the other hand, there's that lovely "collateral dependent" commercial loan. "Collateral dependent" means there's no chance in this lifetime that anyone will make any more payments, but so far the collateral value is enough to retire the loan balance.

Everything is fine and dandy in my little county in Florida. Home prices went up only 250-300% during the last 5 years.(higher for commercial). On a more serios note, IMO, the psychological factor is going to play a very important role in the foreclousure debacle. When people realise they have no equity in their homes and it costs 40-50% less to rent the same type of house, or when they will have to move for one reason or another, even those who could afford to make the monthly mortgage payments or bring a lot of cash at closing-not many, might change their minds. It was the "psychological" factor that made Issac Newton lose his shirt and the university`s money, in the 'South Sea bubble'.

Anonymous | 01.22.07 - 6:44 pm | # was me... got 'Haloed'.

I'd love to see the Reserve calculations. If they're based on historical default rates instead of current state, I'd have to break out the dreaded red pencil.

The bubble is more then fast rising home prices in certain areas but in rather a credit cycle bubble that affects the national RE Market.

Or even international if reports of price bubbles in Europe are accurate.

approximately 29% of loan interest income represented negative amortization

That's nothing, it's more than 50% at FirstFed!

dryfly- "It'll be back to shining deer for entertainment ..."

Man, I haven't heard that one for a long time, a real blast from the past.

CR stabbed it with his steely knife on the last thread, but he just can't kill the beast.

Pfft!

DIDdley... you're so funny, you should write for Colbert.

how much has home ownership grown since 96?

life 400bps more or something right? from 65 to 69% or so?

yes yes foreclosures are up big time. just trying to understand the relative magnitude.

who is ready to start getting together a vulture fund?

who is ready to start getting together a vulture fund?

You have to be on drugs... all the money you're making in dc & you want to piss it away? If things slow between now & then (fat chance right)... spend some time fishing at Chicoteague & then come back strong in '08 & '09... bet more heads roll in both parties then & more 'activity' for you... sittin' in the 'Cat Bird' seat.

Send me some brochures... I'll make sure to hand'em out in Iowa next year. My guess is it will be hard not run into a Presidential candidates by then.

Oh, my take is 5%.

I believe the FT article malabar cites is this one:

Should Atlas still shrug? The threat that lurks behind the growth of complex debt deals

Interesting read...

homeownership rates by state and MSA

Housing Vacancies and Homeownership - Annual 2005: table 13
Housing Vacancies and Homeownership - Annual 2005: table 14
Housing Vacancies and Homeownership - Annual 2005: table 14a

households by state

Population Estimates
http://www.census.gov/popest/archives/1990s/ST-98-51.txt

census.gov also has some household by MSA data, and a lot of population by MSA data, and one could presumably do a little extrapolating. But MSA over time is complicated by the fact that MSA boundaries have shifted over time. If you're interested in a particular MSA, might have to look at the counties that currently define the MSA, then do some summing up for county level data to get anything meaningful.

For California, households are up 15% from 1996 to 2006, and homeownersip rate is up by about 5%. So, the number of foreclosures in CA would have to be about 20% higher than the previous record to set a meaningful new record.

CR - you have to be careful with press release discussions of foreclosure. I've read some of these, and I think by "in foreclosure" they mean "at some stage in the foreclosure process." Well over half the loans that start the foreclosure process typically don't get there - that can change if/when prices REALLY tank. So "Ohio has 3.2% in foreclosure" is likely to mean something like 1% to 2% will actually foreclose. More like one every other block. On the other hand, if the typical loan lingers "in foreclosure" less than 1 year, then the number of loans entering the "in foreclosure" status over the course of a year is likely to be larger than the % "in foreclosure" at a point in time. For most states, a year is probably about right, but for places like TX it's probably well under a year, and places like CA or MN, probably over a year.

Hey vader - that wasn't nice... lol.

I bet dc would do great - he would just have to dig deep, find his inner vulture. We all have one somewhere...

ot

"If we formally discontinue the one-cent denomination, the existing stock of pennies (a billion dollars’ worth of resources sitting in cash registers, jars, and sofas across America) could be recycled as five-cent coins, by simply declaring that pennies are henceforth worth five cents. Rebasing the penny would at the same time debase the five-cent piece and put it safely away from its melting point.
The new value would be instantly established by the Treasury’s standing ready to exchange 20 pennies for a dollar bill. The solution is not costless (for example, those vending machines and parking
meters that accept nickels would have to be reconfigured to accept pennies),
but neither is the alternative of developing and minting a new five-cent piece."

http://www.chicagofed.org/publications/fedletter/cflfebruary2007_235a.pdf

Zimbabwe, Africa and helicopter money

kcirtaP - debt mean anything to you? The whole game was built & still building on debt.

Debt is not growth. Read the FT article malabar linked to & the one above I linked to... (Oh I suppose you think a journal like the 'Financial Times' is run by marxists - well our opinions will have to differ I guess).

This debt cycle is ballooning more than just RE - it's across all assets. That's what's kept it going through the end of '06... its also what will make it such an ugly ending, when it does end.

And debt bubbles always do.

Profits are the mother’s milk of stocks and the economy.

Profits can be easily manipulated - watch the cash instead. Cash flow & future cash flow projections tells you much more.

And what makes cash flow statements so difficult now is that there is unprecedented money supply growth - balloons asset values without necessarily requiring ANYTHING more be produced... except more money.

Makes it extremely easy to pull in future revenue and make it look current & call it 'profit'.

GE is a classic case. Shows great earnings on the income statement... but if you look at the balance sheet and strip away all 'Intangibles' & 'Goodwill' the company barely has positive net worth.

They in effect buy their current earnings with increased future debt obligation. Not unlike living off your credit card assuming your future earnings will cover it (and cover your future consumption needs as well - good thing we die someday).

And GE isn't alone in this practice. I've worked with a number of equity fund buyouts and they all ignored the liabilities side of the BS... like it never matters. It matters, more than the asset side. Liabilities are forever, assets values fluctuate.

dryfly- "My only disagreement with my other 'bears' is the timing."

Speak for yourself, dryfly. I'm a vulture, not a bear.

Maybe there is something to dryfly's obsession with credit. In today's collection of stove food, there is an ad from a car dealership. In it, they try to attract me with the line "bring in your trade-in, even if you owe more than it is worth". Are they going to "allow" more than it is worth? Or are they going to add the difference to the price of the new car, meaning I now owe more on the new car than it is worth?

Sounds to me like the fishy deals common in housing are extending to other parts of the finance economy.