Growing up in Wisconsin, I have a special pride in the Green Bay Packers. Everyone in Wisconsin does. Other than perhaps beer and cheese, nothing is as identifiable as Wisconsin as the Green Bay Packers.
I was born the year of the famed Ice Bowl at the peak of the Lombardi Packers' dynasty. It was a struggle being a Packer fan throught the 70s and 80s, but with Brett Favre, a new era of Packer greatness was ushered in.
Now the next generation of Packers has takent the franchise to the heights of their profession. It is a wonderful and glorious day to be a Green Bay Packer fan.
Good news for your real estate consumption: prices are more affordable in 85% of US housing markets than they were just one year ago. A whopping 40% of all housing markets hit new lows since the bubble peak. Soon houses will be affordable everywhere.
S&P/Case-Shiller released the monthly Home Price Indices for November (actually a 3 month average of September, October and November).
This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities).
Note: Case-Shiller reports NSA, I use the SA data.
From S&P: U.S. Home Prices Keep Weakening as Eight Cities Reach New Lows
Data through November 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show a deceleration in the annual growth rates in 17 of the 20 MSAs and the 10- and 20-City Composites compared to what was reported for October 2010. The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels. In November, only four MSAs – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. The Composite indices remain above their spring 2009 lows; however, eight markets – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007, meaning that average home prices in those markets have fallen even further than the lows set in the spring of 2009.
Click on graph for larger image in new window.
The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).
The Composite 10 index is off 31.0% from the peak, and down 0.4% in November(SA).
The Composite 20 index is off 30.9% from the peak, and down 0.5% in November (SA).
The second graph shows the Year over year change in both indices.
The Composite 10 SA is down 0.4% compared to November 2009. This is the first year-over-year decline since 2009.
The Composite 20 SA is down 1.6% compared to November 2009.
The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.
Prices increased (SA) in only 3 of the 20 Case-Shiller cities in November seasonally adjusted.
Prices in Las Vegas are off 57.8% from the peak, and prices in Dallas only off 8.9% from the peak.
Prices are now falling – and falling just about everywhere. As S&P noted “eight markets – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007”. Both composite indices are still slightly above the post-bubble low.
Have you noticed that mainstream media headlines always portray house price drops as bad and price increases as good? The facts are that house prices hit new lows in 40% of the markets surveyed (8 of 20).
The false bottom engineered by the federal reserve has been taken out in 40% of the nations real estate markets.
HUGE PRICE REDUCTION!! Great location close to 5 Fwy, Award winning Irvine Schools, and shopping. Quiet and private upstairs location, and close to HOA Amentities. Perfect for investors or the first time buyer.
This video was linked in the astute observations this week. It is a great weekend watch.
IHB Weekend Edition
Why don't I write seven posts a week? Time away from my family is one obvious answer, but its more complicated than that. When I first started writing for the IHB, I didn't have access to the traffic counts, and I didn't watch to see if more or fewer people are reading. Traffic didn't matter. I wanted to write because I had something to say about house prices.
When I started watching traffic I noticed that the weekend had 30% less traffic no matter the content. As I grew to know the readership, I realized many people were reading the IHB in their offices, so they only checked Monday through Friday.
After a time of posting on weekends just like a weekday and trying new things, I resigned myself to the fact that fewer people were going to read on the weekend. I stopped doing normal property profiles and began leaving open threads similar to our old forums.
It's time for something new. I played with Photoshop and modified the American Gothic TV studio graphic to create a Weekend Edition.
I will create a weekday post to last two days. I may post about properties in Las Vegas or stories of our work out there. I do have some funny and interesting stories.
California was the land of milk and honey, but with the collapse of the housing Ponzi scheme, Californians are not being given free money. It's making them miserable.
California has never looked less golden, with eight of its cities making the top 20 on our annual list.
Arnold Schwarzenegger was sworn in as the governor of California at the end of 2003 amid a wave of optimism that his independent thinking and fresh ideas would revive a state stumbling after the recall of Gov. Gray Davis.
The good vibes are a distant memory: The Governator exited office last month with the state facing a crippling checklist of problems including massive budget deficits, high unemployment, plunging home prices, rampant crime and sky-high taxes. Schwarzenegger's approval ratings hit 22% last year, a record low for any sitting California governor.
California's troubles helped it land eight of the 20 spots on our annual list of America's Most Miserable Cities, with Stockton ranking first for the second time in three years.
Congratulations, Stockton! I remember being contacted by a recruiter in 2005 about a position in Stockton. I remember thinking to myself that Stockton is not where I wanted to be trapped when the housing bubble burst. Construction related unemployment will be high there for a very long time.
Located in the state's Central Valley, Stockton has been ravaged by the housing bust. Median home prices in the city tripled between 1998 and 2005, when they peaked at $431,000. Now they are back to where they started, as the median price is forecast to be $142,000 this year, according to research firm Economy.com, a decline of 67% from 2005. Foreclosure filings affected 6.9% of homes last year in the Stockton area, the seventh-highest rate in the nation, according to online foreclosure marketplace RealtyTrac.
A 67% decline down to 1998 prices. Wow!
Stockton's violent crime and unemployment rates also rank among the 10 worst in the country, although violent crime was down 10% in the latest figures from the FBI. Jobless rates are expected to decline or stay flat in most U.S. metro areas in 2011, but in Stockton, unemployment is projected to rise to 18.1% in 2011 after averaging 17.2% in 2010, according to Economy.com.
“Stockton has issues that it needs to address, but an article like this is the equivalent of bayoneting the wounded,” says Bob Deis, Stockton city manager. “I find it unfair, and it does everybody a disservice. The people of Stockton are warm. The sense of community is fantastic. You have to come here and talk to leaders. The data is the data, but there is a richer story here.”
He is probably right. The misery in a town experiencing economic hardship is not bore equally. Those that are unemployed suffer greatly while those who continue working as during the boom suffer very little, other than perhaps the loss of their home equity. Those that are unemployed and did not take on a toxic mortgage to buy a house suffer most.
There are many ways to gauge misery. The most famous is the Misery Index developed by economist Arthur Okun, which adds unemployment and inflation rates together. Okun's index shows the U.S. is still is in the dumps despite the recent gains in the economy: It averaged 11.3 in 2010 (blame a 9.6% unemployment rate and not inflation), the highest annual rate since 1984.
Our list of America's Most Miserable Cities goes a step further: We consider a total of 10 factors, things that people gripe about around the water cooler every day. Most are serious issues, including unemployment, crime and taxes. A few we factor in are not as critical, but still elevate people's blood pressure, like the weather, commute times and how the local sports team is doing.
The Green Bay Packers do more to uplift Wisconsin than economic data. Go Packers!
One of the biggest issues causing Americans angst the past four years is the value of their homes. To account for that we tweaked the methodology for this year's list and considered foreclosure rates and the change in home prices over the past three years. Click here for a more detailed rundown of our methodology.
Florida and California have ample sunshine in common, but also massive housing problems that have millions of residents stuck with underwater mortgages. The two states are home to 16 of the top 20 metros in terms of home foreclosure rates in 2010. The metro area with the most foreclosure filings (171,704) and fifth-highest rate (7.1%) last year is Miami, which ranks No. 2 on our list of Most Miserable Cities.
The good weather and lack of a state income tax are the only things that kept Miami out of the top spot. In addition to housing problems (prices are down 50% over three years), corruption is off the charts, with 404 government officials convicted of crimes this decade in South Florida. Factor in violent crime rates among the worst in the country and long commutes, and it's easy to understand why Miami has steadily moved up our list, from No. 9 in 2009 to No. 6 last year to the runner-up spot this year.
California has its own miseries it heaps upon its cities. Do you think California will get a federal bailout?
California cities take the next three spots: Merced (No. 3), Modesto (No. 4) and Sacramento (No. 5). Each has struggled with declining home prices, high unemployment and high crime rates, in addition to the problems all Californians face, like high sales and income taxes and service cuts to help close massive budget shortfalls.
The Golden State has never looked less golden. “If I even mention California, they throw me out of the office,” says Ron Pollina, president of site selection firm Pollina Corporate Real Estate. “Every company hates California.”
There are many highly trained and talented people living in California, and this will always be a draw to employers to locate here, but the high taxes and highly regulated nature of the state makes it very unattractive to business.
Last year's most miserable city, Cleveland, fell back to No. 10 this year despite the stomach punch delivered by LeBron James when he announced his exit from Cleveland on national television last summer. Cleveland's unemployment rate rose slightly in 2010 to an average of 9.3%, but the city's unemployment rank improved relative to other cities, thanks to soaring job losses across the U.S. Cleveland benefited from a housing market that never overheated and therefore hasn't crashed as much as many other metros. Yet Cleveland was the only city to rank in the bottom half of each of the 10 categories we considered.
Two of the 10 largest metro areas make the list. Chicago ranks seventh on the strength of its long commutes (30.7 minutes on average–eighth-worst in the U.S.) and high sales tax (9.75%—tied for the highest). The Windy City also ranks in the bottom quartile on weather, crime, foreclosures and home price trends.
President Obama's (relatively) new home also makes the cut at No. 16. Washington, D.C., has one of the healthiest economies, but problems abound. Traffic is a nightmare, with commute times averaging 33.4 minutes–only New York is worse. Income tax rates are among the highest in the country and home prices are down 27% over three years.
I note that Las Vegas did not make the list. An oversight, perhaps?
I also note that Irvine didn't make the list. Like Disneyland, Irvine is the happiest place on earth.
Leaving the family holding the bag
Everything you will read about this property today is speculation based on a few facts. First, according to Redfin, the 2006 sale at the peak was not an arms-length transaction. That usually means the property was transfered to a family member.
However, when that sale occurred, the peak buyer borrowed $545,000 to complete the transaction. Arms length or not, the lender was happy to extend 100% financing to the borrower. Basically, the bank bought this property at the peak in exchange for the buyer's credit score.
If this was a family member non-arms-length transaction, how do these two parties feel about it? The original owner sold at the peak and obtained a huge windfall. He must feel good. The family member who paid peak price has trashed credit, but isn't out-of-pocket any money. Does the buyer feel ripped off? Does she ask grandpa to make her whole?
-$350 ………. Tax Savings (% of Interest and Property Tax)
-$502 ………. Equity Hidden in Payment
$27 ………. Lost Income to Down Payment (net of taxes)
$53 ………. Maintenance and Replacement Reserves
============================================
$2,183 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,200 ………. Furnishing and Move In @1%
$4,200 ………. Closing Costs @1%
$4,053 ………… Interest Points @1% of Loan
$14,700 ………. Down Payment
============================================
$27,153 ………. Total Cash Costs
$33,400 ………… Emergency Cash Reserves
============================================
$60,553 ………. Total Savings Needed
Property Details for 50 ARBOLES Irvine, CA 92612
——————————————————————————
Beds:: 2
Baths:: 2
Sq. Ft.:: 1440
Property Type:: Residential, Condominium
Style:: One Level
View:: Mountain, Park/Green Belt, Faces South
Year Built:: 1975
Community:: Rancho San Joaquin
County:: Orange
MLS#:: 22147357
Source:: i-Tech MLS
Status:: ActiveThis listing is for sale and the sellers are accepting offers.
On Redfin:: 15 days
This sophisticated Town Home is situated on park-like grounds on a quiet cul-de-sac. A corner unit, this home features a spectacular view of the Newport Coast Mountain RangE & Mason Wildlife Regional Park. This single-level unit with warm neutral tones and an abundance of natural light accentuate the exotic cherry wood flooring throughout the main living area. The spacious entry boasts a handsome built-in Alderwood desk, while the open living room and dining area is graced by an outstanding stacked stone fireplace. The bright and airy kitchen offers beautiful white Hartmark cabinetry, Delerium granite countertops, double porcelain Kohler sink & bay garden window. The well appointed master suite offers an impressive 16 feet of custom built-ins in a mirrored closet complete with cedar ceiling, a master bath that includes a bright picture window with a spectacular view, and 13.5' vaulted ceiling. The guest bedroom features French doors & custom closet with cedar ceiling.
A California appeals court ruled that a former homeowner's lawsuit against U.S. Bank (USB: 27.39 -0.98%) for fraud may continue after the bank allegedly reneged on a promise to negotiate a mortgage modification, opening the door for claims from potentially thousands of similarly situated troubled borrowers in the Golden State.
While the court ruled that a case for fraud–which includes claims for damages–could proceed, it also ruled that the homeowner, Claudia Jacqueline Aceves, lacked sufficient cause to get her home back after the foreclosure sale.
What could become a landmark foreclosure ruling appears to be both a win and a loss, for mortgage servicers and foreclosure defense attorneys alike. Mortgage servicers prevailed on issues of alleged defects in the foreclosure process, with the court ruling that none of the Aceves allegations of irregularities “would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.” Aceves had claimed, for example, that the notice of default was defective and therefore void, a claim the court rejected outright. “Absent prejudice, the error does not warrant relief,” according to the ruling.
The idea of getting a free house because someone made a clerical error on a Notice of Default is crazy. We live in a society that believes unjustified enrichment due to “technicalities” is fine, and if millions of deadbeats get free houses, justice must somehow be served.
The court spent most of its 15-page ruling, however, discussing how U.S. Bank had purportedly promised to negotiate a potential loan modification if the homeowner agreed to allow the bank to lift a bankruptcy stay, which had protected the home from seizure. Yet, when the homeowner agreed and attempted to begin negotiation on a loan modification, the bank allegedly opted to foreclose without negotiating.
Another feature of this ruling is going to be a renewed reliance on the defense that borrowers are immune from foreclosure while a loan modification is being negotiated. Banks will need paperwork from the loan modification department demonstrating the loan modification has been denied before a foreclosure can go forward.
Paul Jackson notes the passing of the Notice of Default irregularity defense in his editorial on the case:
As we roll the 2011 calendar over to February — already?— outcomes of hand-to-hand legal combat in courtrooms across the nation over the sprawling foreclosure mess are continuing to unfold. Early this year, a state supreme court case out of Massachusetts called Ibanez managed to forever alter the meaning associated with one of the world’s most famous electric guitar makers.
Innocent music instruments aside, a new ruling out of California in the past week has the potential to be every bit as important: Aceves v. U.S. Bank. HousingWire’s own Kerry Curry broke the story Tuesday afternoon, which really is a Jeckyll and Hyde sort of ruling that has the potential to be one of the nation’s most significant rulings in the foreclosure morass.
Depending on your view, in Aceves, you have something to cheer; and depending on your view, you also have something to fear. Regardless of your view, you have a ruling you can’t ignore, especially in California.
But, as we’ll see, the real bombshell in the Aceves ruling isn’t at all what you might expect.
The majority of the ruling’s text discusses the borrower’s right to pursue potential fraud and so-called promissory estoppel claims against the servicer, as HousingWire's original coverage provides strong detail on. And while the ruling should be instructive on that front to servicers working with borrowers in bankruptcy in California, there is far more buried in the pages of the ruling that is likely to be missed by the media hype.
Instead, the real importance of Aceves is buried on page 14 of a 15-page ruling, in a section called, innocuously enough, “Remaining Claims.”
And in particular, within a single paragraph:
Aceves also takes issue with the notice of default, pointing out that it mistakenly identified Option One as the beneficiary under the deed of trust when U.S. Bank was actually the beneficiary. Although this contention is factually correct, it is of no legal consequence. Aceves did not suffer any prejudice as a result of the error. Nor could she. The notice instructed Aceves to contact Quality Loan Service, the trustee, not Option One, if she wanted ― “[t]o find out the amount you must pay, or arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason.” The notice also included the address and telephone number for Quality Loan Service, not Option One. Absent prejudice, the error does not warrant relief. (See Knapp v. Doherty (2004) 123 Cal.App.4th 76, 93–94 & fn. 9.)
This is a much larger finding than it might seem, according to at least two California attorneys I spoke with that practice in creditor’s rights. Explaining why, however, requires some unpacking.
Let’s get legal
For those of you that are intrepid researchers, you’ll note that the appellate court ruling in Aceves above cites Knapp v. Doherty as the controlling authority regarding its finding on the validity of the notice of default — that full case ruling is available here.
And if you read Knapp v. Doherty, you’ll note that the 2004 California state appellate ruling in that case applied only to the notice of sale in a nonjudicial foreclosure, not explicitly to notices of default.
But by granting the Aceves allegation of errors on the notice of default — and then still tossing out the claim anyway — the court in Aceves made it unmistakably clear that the so-called “prejudice rule” as applied to notices of sale in Knapp v. Doherty now applies to notices of default in the state of California, as well.
In plain English, the court basically said: We don’t care what the alleged defect in the notice of default is, unless you can also demonstrate that you were somehow harmed by that same defect.
This is common sense. The delinquent borrowers knew they were delinquent, and with notices taped to their door, they knew it was their property coming to auction. Notice of Default irregularities should not have become a defense against foreclosure. It no longer is.
It’s worth noting that state appellate court rulings are binding on lower-level trial courts, according to the legal sources I’ve spoken with — so this ruling has extremely wide implications on potentially thousands of existing cases in the state of California where borrowers are contesting a foreclosure on something akin to the validity of the notice of default. It's equally worth noting that California's so-called “prejudice rule” is not new, and is extremely well-established.
Going forward, attorneys I’ve spoken with tell me this is a sea change relative to how foreclosure-related litigation will be managed in the state. It also is likely to influence other states with similar “prejudice rules,” especially those that permit a nonjudicial foreclosure process, these attorneys have suggested. California attorneys have told me for months that nearly every contested foreclosure case in the state has involved a challenge in some way to the notice of default; it’s the single most common claim, I've been told.
I suppose when borrowers have nothing else, finding some minor technical error is weak but better than nothing.
It was only a few weeks back, after all, that colleague Kate Berry at American Banker made national headlines with a story that echoed the concerns (hopes?) of many lawyers contesting foreclosure actions, who were quick to suggest to the press that procedural errors in notices of default—including that evil of all judicial foreclosure evils, robo-signing — could render even nonjudicial foreclosures invalid, too.
Now? Probably not so much, at least in California.
I’d guess some of the same sources that led Berry to write her original story are moving fairly quickly at this point to marshal their resources around the fraud issue now green-lighted in Aceves (and detailed in HW’s news coverage of the case). After all, while the facts in the case are pretty unusual, pretty much every troubled borrower on Earth can allege: “I would have filed bankruptcy, too, if only I’d known the truth about loan modification.”
Paul Jackson is the founder and editor-in-chief of HousingWire. As with any HW columnist, his views are his own only and do not represent those of HousingWire. Follow him on Twitter: @pjackson
Attorneys will have to retool their cases by taking out the claims about deficient NODs and put in claims about being foreclosed while a loan modification was being considered. The latter circumstance being quite troubling for lenders. Everyone who went though a foreclosure who made a verifiable attempt at a loan modification will make a claim against the banks.
What a mess.
Zero down, $100K free money
Sometimes, I feel pretty stupid not buying a house in 2004-2006. I might have bought if I had known that I could purchase with nothing down and within a couple of years go back to the bank and get free money.
Of course, I know that is going Ponzi, so I couldn't get myself to do that; however, through ignorance, carelessness, and greed, many bubble-era buyers did buy these properties, and they did go Ponzi.
The owner of today's featured property paid $385,500 on 8/26/2003. He used a $308,080 first mortgage, an $77,020 second mortgage, and a $400 down payment. Perhaps the bank saw that as a security deposit?
On 10/31/2005 the obtained a $401,250 first mortgage and a $80,200 HELOC to raise the total property debt to $481,450 and the total mortgage equity withdrawal to $95,950.
Now that prices have gone south, this borrower is short selling and leaving the lender wondering how they are going to get their free money gift back.
A federal inquiry has blamed Greenspan and Bernanke for failing to regulate dangerous financial products that caused a housing bubble and widespread financial meltdown.
Nobody is perfect. Everybody plays the fool sometimes. We hope we put people in positions of power who know what they are doing. Sometimes, these people fail, and when they do millions suffer for their arrogance and their ignorance. The sad conclusion of the government commission on the financial crisis concluded the entire ordeal was avoidable. If a few key people in power had made different decisions, we could have averted a housing bubble and the near meltdown of our financial system.
WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.
The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.
“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”
While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings.
Many of the conclusions have been widely described, but the synthesis of interviews, documents and testimony, along with its government imprimatur, give the report — to be released on Thursday as a 576-page book — a conclusive sweep and authority.
What is shocking to me is that this report got so much right. Government reports are usually whitewashes of their own ineptitude. This report points out the failings accurately which is rare by government standards.
The commission held 19 days of hearings and interviews with more than 700 witnesses; it has pledged to release a trove of transcripts and other raw material online.
Of the 10 commission members, the six appointed by Democrats endorsed the final report. Three Republican members have prepared a dissent focusing on a narrower set of causes; a fourth Republican, Peter J. Wallison, has his own dissent, calling policies to promote homeownership the major culprit. The panel was hobbled repeatedly by internal divisions and staff turnover.
The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.
It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”
Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly, it turned out — that the subprime collapse would be contained, the report notes.
Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”
That was an Alan Greenspan decision. As head bank regulator, he had the authority to regulate credit default swaps as insurance or allow them to exist in a wild west environment of zero regulation. He chose to allow insurers and hedge funds to concentrate risk to the point that it destabilized the world economy.
Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury secretary, was not unscathed; the report finds that the New York Fed missed signs of trouble at Citigroup and Lehman, though it did not have the main responsibility for overseeing them.
Former and current officials named in the report, as well as financial institutions, declined Tuesday to comment before the report was released.
The report could reignite debate over the influence of Wall Street; it says regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.
It wasn't regulator capture that prevented oversight. It was the incompetent leadership of Alan Greenspan. The federal reserve can be viewed as the ultimate form of regulatory capture. The banks have set up their own regulator with the federal reserve that can do whatever it wants. The federal reserve reports to no one. Congress could revoke their charter, but so far, only the Ron Paul fringe has suggested that.
The report does knock down — at least partly — several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.
Amazing. The report is correct on all counts. Each of the items listed above has been erroneously identified as being causes of the housing bubble, mostly by political operatives posturing for advantage.
On the other hand, the report is harsh on regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion potential losses and halt risky practices, and that the Fed “neglected its mission.”
Right on. The federal reserve abdicated its responsibility to the collective wisdom of the market. The infallible genius of the herd took prices over the cliff.
It says the Office of the Comptroller of the Currency, which regulates some banks, and the Office of Thrift Supervision, which oversees savings and loans, blocked states from curbing abuses because they were “caught up in turf wars.”
“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” the report states. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”
I know I beat up on Alan Greenspan quite a bit, but let's take a look at the questions he asked and the answers he accepted during the housing bubble, and I think you will see why I hold him in such low regard.
First, it was brought to Greenspan's attention on many occasions that the price-to-income ratio, the price-to-rent ratio, and the aggregate debt-to-income ratio was well outside of historic norms. He surmised this was because the strong economy he engineered was creating many households, and the innovations in the mortgage industry were getting people into homes and boosting the owner-occupancy rate. In short, he was a genius for allowing these other financial geniuses to create such prosperity… or so he thought.
What Greenspan did not do was ask a few simple questions. (1) How can people finance so much money with such a small income? (2) Can borrowers fulfill the terms of these new loans and sustain ownership? (3) What happens if the new innovations in finance fail?
With a little intellectual curiosity from the perspective of new buyers, I believe that any reasonable person could have figured out that prices were built on an unstable base of toxic financing. I am shocked that the head banking regulator, a man with years of education and training and the research budget of the federal reserve behind him, this man could not see the housing bubble. He needs to check his glasses.
The report’s implications may be felt more in the political realm than in public policy. The Dodd-Frank law overhauling the regulation of Wall Street, signed in July, took as its premise the same regulatory deficiencies cited by the commission. But the report is sure to be a factor in the debate over the future of Fannie and Freddie, which have been run by the government since 2008.
Though the report documents questionable practices by mortgage lenders and careless betting by banks, one striking finding is its portrayal of incompetence.
It quotes Citigroup executives conceding that they paid little attention to mortgage-related risks. Executives at the American International Group were found to have been blind to its $79 billion exposure to credit-default swaps, a kind of insurance that was sold to investors seeking protection against a drop in the value of securities backed by home loans. At Merrill Lynch, managers were surprised when seemingly secure mortgage investments suddenly suffered huge losses.
By one measure, for about every $40 in assets, the nation’s five largest investment banks had only $1 in capital to cover losses, meaning that a 3 percent drop in asset values could have wiped out the firm. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant “shadow banking system” in which the banks relied heavily on short-term debt.
“When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost,” the report found. “What resulted was panic. We had reaped what we had sown.”
The report, which was heavily shaped by the commission’s chairman, Phil Angelides, is dotted with literary flourishes. It calls credit-rating agencies “cogs in the wheel of financial destruction.” Paraphrasing Shakespeare’s “Julius Caesar,” it states, “The fault lies not in the stars, but in us.”
Of the banks that bought, created, packaged and sold trillions of dollars in mortgage-related securities, it says: “Like Icarus, they never feared flying ever closer to the sun.”
Phil Angelides failed in his bid for governor of California. It looks like he did a great job writing this report for the government commission.
Greenspan and Bernanke were incompetent. A massive housing bubble grow under their watch, and they did nothing. Perhaps our understanding of financial viruses is still primitive, and Greenspan will be pardoned by history for his ignorance. He apologized for his mistaken philosophical beliefs that guided him for 40 years inexorably to the abyss.
Alan Greenspan will be the fool who exposed the folly of the efficient market once and for all. Or will he be the scapegoat for central planning and market manipulation by the federal reserve? Whatever becomes of his legacy, you can now add responsibility for the housing bubble and financial meltdown of 2008.
She more than tripled her mortgage
As an example of how lenders at all levels abdicated their responsibilities, the owner of today's featured property was allowed to more than triple her mortgage debt over a nine year period. Doesn't a lender see that a borrower has gone Ponzi? Did anyone care?
The owner of today's featured property bought at the bottom of the last cycle. She paid $285,000 on 11/18/1998 using a $185,000 first mortgage and a $100,000 down payment.
On 8/6/2001 she opened a HELOC for $35,000.
On 4/30/2003 she refinanced with a $266,000 first mortgage. At this point she has spent all but $19,000 of her down payment.
On 4/30/2004 she obtained a $150,000 HELOC.
On 10/18/2004 she got a HELOC for $250,000.
On 11/22/2004 she obtained a $300,000 HELOC.
On 2/28/2005 she enlarged the HELOC to $351,450.
On 11/28/2006 she refinanced the first mortgage for $564,000 and opens a $70,000 HELOC.
On 4/10/2007 she refinanced with a new $564,000 first mortgage.
Total mortgage equity withdrawal is $379,000.
She quit paying last fall.
Foreclosure Record
Recording Date: 01/19/2011
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 10/18/2010
Document Type: Notice of Default
This woman was given this money because of a few key decisions Alan Greenspan made regarding the regulation of credit default swaps which led to a mispricing of risk and a flood of money rushing into the mortgage market.
Status:: ActiveThis listing is for sale and the sellers are accepting offers.
On Redfin:: 9 days
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Desireable three bedroom two and one-half bath Cottage Home inside the Loop away from freeway noise with white picket fence on green belt. This home features crown molding, scraped ceilings, hardwood floors and custom window shutters, cozy fireplace in living room; dining room with chair rail opens into private sideyard; kitchen features gas stove and breakfast counter; family room with ceiling fan; bedrooms have mirrored wardrobe doors; patio has brick trim; spacious 2 car garage; near schools, association parks, pools and tennis courts; convenient to shopping.
