Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1308.1 | -2.3 | -0.18% |
| Eurostoxx Index | 2427.4 | -7.670 | -0.31% |
| Oil (WTI) | 99.96 | -0.430 | -0.43% |
| LIBOR | 0.5611 | 0.000 | -0.02% |
| US Dollar Index (DXY) | 80.3 | 0.244 | 0.30% |
| 10 Year Govt Bond Yield | 1.99% | 0.02% |
Futures are down slightly this morning on weakness in Europe and a lackluster earnings report from GE and Google. GE’s Earnings were a penny better (surprise, surprise) but revenues came in light due to weakness in Europe and the finance business. Google stunk up the joint with a miss on the top line and the bottom line. It is down 8% pre-market.
Sorry I wasn’t around yesterday, though I see some people filled in for me. I was at the CSFB Securitized Products conference yesterday in the city. Congressman David Schweikert (Vice Chairman of te House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises) spoke regarding the regulatory environment. A few takeways from the conference:
1) CSFB expects housing to decline 5%-7% this year and that *should* mark the bottom.
2) The government wants to introduce private capital into the mortgage market, but at the same time is trying to drive it away. The SEC is looking at changing the treatment of mortgage REITs which would drain, not add, private capital.
3) To get Fannie Mae capitalized to a reasonable level that would allow it to re-float would take a quarter of a trillion dollars. Nobody has a clue where that much money can be raised in the private sector. Which means Fannie and Fred will continue to be wards of the state.
4) The government is really interested in REOs to rentals. The problem is scalability.
5) 60% of underwater homeowners are current on their mortgages. Any sort of mass refinancing / mass principal cramdown for delinquent borrowers will also contain a massive moral hazard problem. Also, different treatment – the homeowner with a FHA loan gets relief, while the guy who’s mortgage went the private label route gets nothing.
6) There are a few leaders in Washington who get it, but most don’t. The appetite is still for slowing the foreclosure pipeline (in spite of volumes of evidence that it doesn’t do a thing to slow price depreciation – in fact it makes it worse).
7) Democrats want mass principal cramdowns and refis in spite of the fact that it would be an economic drag. It is simply a 1:1 transfer of wealth from investors to borrowers, so there is no multiplier effect, and the additional regulatory risk would drive mortgage rates higher. CSFB has conducted studies showing it is the affordability of the mortgage payment that matters, not the borrower’s equity position.
8) Question of the day: “Congressman, has anyone in Washington thought about just letting the markets clear?” (The only thing that brought out laughter from the audience all day)
One observation I would make is that we want first time homebuyers, not necessarily hedge funds, to be buying up the excess supply. Yet closing times and down payment requirements for short sales drive many first time homebuyers away. I don’t know if it is because of regulatory reasons. If it is, Washington and the states should figure out a way to streamline the process.
In economic data, existing home sales comes out at 10:00.
Filed under: Earnings Announcements, Economic data, Economy, free markets, housing, politics |
All Things in Moderation 
Glad you are back!
You have set out the dilemma of the housing market better in one short post than I have seen done by any single biz journalist in any one other place. Thanks for pulling it together.
If you cribbed from a single journalist, tell us who!
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Thanks, Mark. These just came from my own notes from the conference. I spared all of you the majority of the stuff, which was bond-geek MBS stuff.
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Agree with Mark’s observation. This is certainly as good as anything Ezra Klein writes in the Washington Post (which isn’t meant to be a knock against him).
One question: I assume bankruptcy cramdown wasn’t discussed at all?
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Thanks guys. No, bankruptcy cramdown wasn’t specifically discussed. The big thing is that a cramdown really only takes a dollar from a retiree and gives it to a borrower. So there is no mulitplier effect. And it would cause the risk premium on mortgages to rise, which would undo everything the Fed has been trying to do with lowering mortgage rates.
But Congressman Schweikert did say that just under 50% of the House Financial Services Committee is in favor of a principal cramdown.
He also admitted that Washington is moving so slowly because every time they arrive at some sort of solution, someone from the financial services industry asks “Well, what about X?” And everybody goes back to the drawing board. They really don’t have anyone who really understands the whole picture.
I suggested to him that there are lots of unemployed Wall Streeters who understand this stuff like the back of their hand, who have applied for government jobs only to be ignored because they weren’t career civil servants, or didn’t have PhDs or law degrees. I suggested that the government’s hiring process think a little outside the box. FWIW. I’m sure it will be ignored.
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I’m thinking of refinancing and rolling in an old HELOC I haven’t touched in several years but still has a balance and perhaps cashing out to pay off some student loans I took out for my son. My latest tax assessment shows about a 5% haircut to appraised value but our area has stayed pretty steady. I just dread starting the process. I sure would like to get in on some forced refinancing even though I’m not underwater and have never missed a payment. It’s the prodigal son envy problem.
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CSFB has conducted studies showing it is the affordability of the mortgage payment that matters, not the borrower’s equity position.
I agree, while people do worry about being underwater on their mortgage, I think they worry a lot more about not being able to make their mortgage payment. Lots of people live paychec to paycheck nd being underwater doesn’t impact how much money you have to spend, at least short term. Having a lower monthly payment would impact them greatly.
Yet closing times and down payment requirements for short sales drive many first time homebuyers away. I don’t know if it is because of regulatory reasons. If it is, Washington and the states should figure out a way to streamline the process.
I was just talking with a colleague at my firm who would like to buy a house, he currently rents, and obviously a short sale would be ideal. However, the timelines on short sales are so uncertain that it’s really hard to go that route while you are signed to a lease.
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I know a young couple with a newborn trying to buy a shortsale. The banks just drag their feet. In the meantime they are living with in-laws. Yikes.
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There weren’t any short sales in the area we were looking when we bought a house last year, but I have heard plenty of stories where the bank drags their feet 6 months or longer. That isn’t always the case but it’s the perception of the process and that is a problem.
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In New York, the seller’s agent won’t even talk to you unless you have 20% down. Which pretty much rules out most first time homebuyers.
It is almost as if the banks are reluctant to sell because they think there is something coming down the pike that will allow them to get out flat.
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I can’t imagine why they would think that the government would intervene in the mortgage market and/or do another bailout. That’s crazy talk.
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How do you get spaces between paragraphs?
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doesn’t work for you?
I can enter twice and there it is.
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Good morning!
http://www.businessinsider.com/todays-debt-swap-talks-will-get-greece-no-closer-to-a-resolution-2012-1
A deal between Greece and private sector creditors is still up in the air. I found this article intriguing, as it concludes that, no matter how the short-term negotiations work out, the amount of Greek debt is still too high.
The bottom line is that Greek debt is just plain unsustainable, and probably will continue be without significantly more ambitious debt restructuring. Greece is still screwed, and current negotiations do little to nothing to change this.
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Greek citizens need to pay their back taxes. 🙂
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BTW, thank you to those who contributed to the “50 Questions”. Keep ’em coming!
Hoppy birdies to okiegirl! BroJS hit the big 6-0 last year and I folded sixty $1 bills into shapes from our childhood and wrote a loooooong note describing the significance of each. (for those not yet in the loop, money origami is a hobby of mine).
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Eve 6 “Inside Out”, the only song I know of that mentions origami.
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Brent:
One addition to your thoughts about housing. At 3-4% on a 30 year fixed, and with banks having to hold a higher percentage of the mortgages they write, lenders will go to great lengths NOT to write new mortgages. These will prove terrible investments for the banks within 2-3 years as they well know. It’s just another illustration of the law of unintended consequences
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The only solace for banks is that mortgage servicing rights are worthless right now (basically, they are one big IO) so if rates go up, the MSRs will increase in value too, but you are right, the banks could find themselves funding 4% assets with 4% CDs
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I left out yet another part that of MERS. Until there is a national settlement that delineates what the rules are, moving these mortgages around will be difficult too.
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The SC does it again.
http://www.usatoday.com/news/washington/judicial/story/2012-01-20/supreme-court-texas-redistricting/52694144/1
Great so who will be my Representative?
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From CNN:
In an unsigned opinion issued just 11 days after holding oral arguments, the justices said a revised map that differed greatly from the one created by the legislature used ambiguous standards.
“To the extent the [federal] District Court exceeded its mission to draw interim maps that do not violate the Constitution or the Voting Rights Act, and substituted its own concept of ‘the collective public good’ for the Texas Legislature’s determination of which policies serve ‘the interests of the citizens of Texas,’ the [district] court erred,” said the Supreme Court ruling Friday.
So will the USSC define its own abiguous words? How is the courts concept “of collective good” not correct?
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I don’t know that the District Court would need to know what the definition of “collective public good” in order to comply with the opinion. The more relevant requirement is that the District Court leave in place anything that does not violate teh Constitution or the Voting Rights Act. To the extent that the Disctrict Court “improved” on non-violative parts of the plan, they need to put them back in. I do agree with you that the ruling seems ambiguous and unhelpful unless the court explained what portions of the interim maps did nto violate the Constitution or Voting Rights Act.
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In my January 10 post called “Whither Texas?” I laid out the history and status of the TX redistricting matter, and the quandary faced by the Supremes. I predicted a unanimous ruling and a remand to the San Antonio panel to make appropriate findings to support their deviations from the legislative map. This is apparently what has occurred.
I also said I thought the Supremes were concerned with scheduling based on the oral argument that I linked to. I have not read the opinion so I do not know if they put the SA panel under a deadline. I predicted a postponement of our primary until June, but I do not know where that stands. I will try to read the whole opinion later today.
I will go out on a limb and say that under pressure, the SA panel will say that the legislative map violates VRA by diluting LRGV and border hispanic votes. Period. Then they will rewrite the map perhaps from Austin to Brownsville to Laredo to El Paso.and back to San Antonio.
DFW area Ds will not be happy, in that case.
I will go out on another limb and say that where the legislative map made 3/4 of the new seats safely R and the first panel map made 3/4 of the new seats safely D, the new map will probably split the four new seats. Which is why DFW Ds will be pissed.
I think the first SA map was defensible as a VRA sensitive map, so they could just justify it, from testimony, if they read the Supremes as only asking them to dot their “i”s.
Either way, Austin gets rewritten, Mike.
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Sadly, yes. I’ve been really against this type of thing on the part of both parties. Win with arguments and not with drawing up safe districts. This activity destroys the marketplace of ideas and cheapens our “Democracy.”
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Mark,
Lyle Denniston has a post about the decision on SCOTUSblog.
Lyle on Perry v. Perez.
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Lyle provides depth here. Good chance TX will get a rapid decision, then.
The problem with the first SA panel decision is that it simply did not lay out the factual basis for it and assumed quite by assumption that it had a clean slate to write upon.
The specificity of the decision leads me to reject the alternate guess I posted that the panel might use testimony to re-enter the same map. I think they start from the Lege map, for real, and deal with the obvious, not the merely plausible, for an interim map.
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Ditto ashot’s point: whether a homeowner is underwater is usually irrelevant until its time to sell). Instead its cashflow that homeowners & buyers should be focusing on. The media contributes to the problem by focusing on how many people are underwater.
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Disagree. Who would be foolish enough to spend money on a house where they were underwater. No Home Depot or Lowes, and no remodeling.
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That’s probably true, John. Although if you are resigned to being stuck in your house for a long time because you are underwater, you may be interested in making the house more comfortable. My point is that I think most people underwater recognize they are stuck with the house and are not looking to sell. They hit they will take when they sell is a problem that is a long way off. Instead they are focused on trying to make their monthly payments and paying down their other debt. At least that’s my impression.
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ash:
It’s also terribly limiting in other ways. No moving to get a better job, or A job. No ability to borrow to strat a business, or pay for college, etc.
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Those are all good points, but you probably aren’t doing those things anyway, if you are living paycheck to paycheck.
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if you are living paycheck to paycheck.
You might be trying to move to get a better job. . .
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Sure there are exceptions. I guess I’m of the mindset that if a person didn’t plan to be there for 5 or more years, why did they buy the house? The media appears to be supporting the short term mentality that if an owner is underwater today they should walk away. I think the formula should include more variables, particularly cash flow & timeframe for living in the area.
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bsimon:
Exactly. We have strongly and mistakenly over emphasized home ownership to the detriment of renting
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We’re getting a lot of the law of unintended consequences today, although not always in an obvious manner. Consider this small item in the news that is blowback from our attempts to isolate Iran:
“India and Iran have also reportedly agreed to settle some oil sales in rupees, so that would be another way to circumvent EU and U.S. sanctions. “This is one of the first times oil has been settled in a currency other than dollars. It’s a major coup for the Iranians,” says Again Capital founder John Kilduff, adding its also another reason for an unwinding of the Iranian risk premium in oil prices.”
http://www.cnbc.com/id/46072387
Should this be an expanding trend, the implications are significant. This piece is from 2009, but offers a pretty reasonable explanation of how this might matter:
“Oil Not Priced in Dollars by 2018?”
http://www.businessweek.com/globalbiz/content/oct2009/gb2009106_736291.htm
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