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Obama cuts refinance costs for some mortgages

| March 7th, 2012 | No Comments »


Obama cuts refinance costs for some mortgages

By Les Christie @CNNMoney March 6, 2012: 11:19 AM ET

 

NEW YORK (CNNMoney) — Borrowers with some federally insured mortgages will be able to refinance into lower interest rate loans more easily and cheaply under a plan being unveiled Tuesday by the Obama administration.
At a news conference scheduled later in the day, President Obama was set to announce that the Federal Housing Administration will cut upfront fees for refinancing loans it already insures.

The new fees are for borrowers whose FHA loans were issued before June 1, 2009. An estimated 2 to 3 million borrowers could take advantage of the savings, which could reduce mortgage payments for the typical FHA borrower by about a thousand dollars a year, according to the administration.
Borrowers who refinance their existing FHA loans will pay an upfront insurance premium equal to 0.1% of the mortgage amount — $100 for a $100,000 loan — plus an annual fee of 0.55%.
The fees being announced for refinancing contrast sharply with the cost of obtaining a new FHA loan, according to Jaret Seiberg, an analyst with the Washington Research Group. A borrower making a 3.5% down payment on a home purchase as of April 1 will pay a 1.75% upfront fee and a 1.25% annual fee. Those purchase fees were raised barely a week ago to improve the FHA’s capital reserve.

Has Obama’s housing policy failed?

Still, lowering refinancing fees “should be broadly positive for housing and the economy by reducing foreclosures and freeing up income for consumers to spend on other goods and services,” Seiberg said.
The new policy will also make it easier for the banks to refinance loans because it directs the FHA to not count these refinanced loans toward the lender’s “compare ratio.” That calculates the performances of loans issued by the lenders and compares it to other lenders’s performances.
Some lenders have not wanted to refinance FHA loans because they tended to have been made during years of high default rates, according to Seiberg.The administration proposal eliminates the downside to banks making these refinance loans.

 

This FHA refinance fee reduction is the latest in a long line of administration initiatives intended to jump start the housing market and, by extension, the economy.
It can be thought of as an addition to the Home Affordable Refinance Program (HARP). The program enables borrowers with mortgages backed by Fannie Mae (FNMA, Fortune 500) or Freddie Mac (FRE) to refinance even when they are deep underwater on their loans, owing far more than their homes are worth.
By reducing mortgage payments, both HARP and the new FHA fees free up money that could now be spent on other things like consumer goods.

Also being provided with potential relief are servicemen wrongfully foreclosed on. Lenders and servicers will be required to review the cases of every service member foreclosed upon since 2006.
Under the plan, any service member wrongly foreclosed upon will receive compensation. There will also be a refund of any overcharges for those who were denied the opportunity to refinance, and relief for those who had to sell their homes at a loss because of a change in station.

 

Housing sales and prices edge up in metro Denver

| March 6th, 2012 | No Comments »
Article by Steve Raabe:  Denver Post

Housing sales and prices edge up in metro Denver

The metro Denver housing market took another step toward recovery in February with sales up and inventory levels down.

Unsold homes on the market dropped sharply, with the current inventory at 10,086, a drop of 41.9 percent from February 2011.

Properties under contract for sale totaled 4,150 in February, an increase of 12.4 percent from the same month in 2011, according to data compiled by independent real estate consultant Gary Bauer.

“The momentum that started at the beginning of the year is continuing,” Bauer said. “We’ve got a market that’s really moving.”

Driving the market is a surge in the number of first-time buyers and move-up buyers targeting lower-priced homes, Bauer said,

Among single-family home sales in February, 43 percent were properties that sold for less than $200,000.

For condo sales, 62 percent were priced at less than $150,000.

Sellers of the lower-priced properties are moving up to moderately-priced homes, creating a bottom-up chain reaction that should eventually stimulate the sale of more-expensive homes, Bauer said.

The median price of detached single-family homes that closed in February was $220,000, up 0.5 percent from January and unchanged from February of last year.

Condos and townhomes sold in February at a median price of $120,000, up 6.2 percent from January, but a decrease of 3.8 percent from February 2011.

Economist Patty Silverstein of Littleton-based Development Research Partners said that a 13.2 percent increase in home sales during the first two months of the year “demonstrates that the housing recovery remains on track in metro Denver.”

She noted that although inventory levels are down, they remain high enough that metro Denver “is still not achieving solid price appreciation.”

Housing and mortgage analyst Lou Barnes of Premier Mortgage Group in Boulder noted that two recent national reports showed ongoing weakness in the real estate market.

Case/Shiller’s home price index dropped 3.8 percent in the last 90 days of 2011. CoreLogic reported that 27.8 percent of households are under water with their homes valued lower than their mortgage balances.

Steve Raabe: 303-954-1948 or sraabe@denverpost.com

Denver Post: www.denverpost.com 

FHA changes to impact borrower costs – effective April 1st

| March 1st, 2012 | No Comments »

EFFECTIVE APRIL 1:

MAJOR FHA CHANGES TO INCREASE BORROWER’S COST

(plus a little good news)

 

This week several major changes were announced at HUD that will have a direct impact on FHA borrowing costs.

If you have clients that are on the fence share this information with them. These changes go into effect on all new FHA case numbers generated on or after 4/1/12. You can read the formal press relesase from HUD here.

 

 

CHANGE #1

Annual mortgage insurance premium (MIP) is increasing by 0.10%.
For loans over $625,500, effective June 1st the increase is 0.35%.

CHANGE #2

Upfront premium (UFMIP) is increasing by 0.75%.
HUD will continue to allow this to be financed.

Here is a scenario to show you the effect the April 1st changes will have on borrower costs. I assumed a purchase price of $250,000 with 3.5% down.

 

Current FHA Fee New FHA Fee
on 4/1/12
Increase
Upfront MI $2,412.50 $4221.88 $1809.38
Monthly MI $231.20 $251.30 $20.10

 

BUT THERE IS GOOD NEWS TOO!


In addition to this, HUD also just announced it would be reducing premiums for FHA loans endorsed on or before May 31, 2009. This decrease in MI will make streamline refinances more easily available. Details are due in the next couple weeks.

Questions? Contact me anytime!

Happiest Cities in America… BOULDER IS AT THE TOP!

| March 1st, 2012 | No Comments »

 

 Photo of Dave Query of Big Red F Restaurant Group

2. Boulder, Colo.

Happiness score: 99.36

Gallup-Healthways Index rank: 5
Unemployment rate: 5.8
$100,000+ families: 43.8
Average sunny days: 360+

According to the most recent survey of American happiness and well-being, the country’s residents are just a little less well off than they were in 2010 in terms of their habits, environment, and emotional and physical health. The nation’s “Well-Being Index” score, computed by Gallup-Healthways as part of an annual survey, was 66.2 out of 100 in 2011—the lowest since Gallup-Healthways first conducted the survey in 2008.

But not every pocket of America is sagging. To find out which metro areas have the sunniest dispositions, The Daily Beast first analyzed Gallup-Healthways’ data for more than 100 metro areas, accounting for 40 percent of a city’s final score.

Because happiness has been linked to employment, earnings, and even the weather, we also considered each of the following: unemployment rates, according to the Bureau of Labor Statistics; percentage of families earning more than $100,000, or approximately the top-earning quartile nationwide, according to census figures; and, where available, the number of clear days per year, according to the National Climatic Data Center.

Story from http://www.thedailybeast.com

 

“Buy Houses” Says Warren Buffett

| February 27th, 2012 | No Comments »

Warren Buffett’s investment advice is to buy houses

From MSM Money
Billionaire and Berkshire Hathaway CEO Warren Buffett gave out some free investment advice on TV Monday. Buffett said on CNBC that Americans should buy distressed houses, which are really cheap right now, and rent them out (after fixing them up a bit, of course). Buffett said he’d snatch up “millions” of single family homes if it were practical, but said he isn’t very handy.

America’s investment grandpa also was optimistic about the economy: He said it’s bouncing back in almost all sectors, except home construction, but he predicts it will bounce back there, too.

related links
Buffett says he was ‘dead wrong’ on housing market
Warren Buffett’s biggest stock investments
How to tap your inner Buffett

Markets are quiet, volatility gone, waiting for something to happen. Not calm, plenty tense, a lot happening but not concluding.

| February 25th, 2012 | No Comments »

Markets are quiet, volatility gone, waiting for something to happen.  Not calm, plenty tense, a lot happening but not concluding.

The overriding influence near-term: The Battle of 1370. What, Europe again? The English and French refighting some unpleasantness between Crecy and Agincourt?

Nah. Every stock trader on the planet is mesmerized by S&P500 1370. Go above it, and stocks should rocket if only because so many buy the chart. One problem: the S&P since mid-December has already run straight from 1200, and been stuck between 1345 and 1365 for three weeks. As vulnerable on downside as likely to explode upward.

Fed-managed long-term rates no longer react to anything: the 10-year T-note since the end of October has traded 90% of the time between 1.90% and 2.05%.

Europe has pulled back from another Greek brink, but not resolved a thing. Austerity in the big dominoes — Italy, Spain, and France — has not begun, each promising fiscal tightening about 4% of GDP this year. In US equivalent, imagine a $600 billion tax-hike spending-cut combination during the onset of new recession.

The ECB will next week expand bank rescue funding toward infinity. However, the ECB firehose will have little economic effect, just preventing weak banks from failing, strong banks disinterested in risk-taking, no matter how much cash the ECB sprays.

So, the world admiring its navel, what’s up with the long-slow-roller, housing?

Finance types have amused themselves in the new year by announcing housing recovery. Merrill Lynch’s newest report concludes: “The housing recovery would support an even bigger commitment to equities in our portfolios.” Right. Merrill would find sunrise or Joe Stalin’s birthday good reasons to buy more stock.

Home sales data had been talked this winter into optimistic anticipation, and the flat reality misreported: a ballyhooed but minor gain in January sales of exiting homes was reversed by a downward revision for December. Sales of new homes were just the reverse: off .9% in January, revised up a little in December. And this winter was one of the mildest in a long time. New applications for purchase loans have been unchanged all through the winter into February.

Home prices have flattened. The FHFA Home Price Index wobbled weakly through 2011, and recovered in December to a decline of .8% from where it started. The Newest Case-Shiller data is a hair weaker, through last November off 3.7% year-to-date, the last two months showing new declines in 19 of 20 cities. Stock hawkers see these trends as a happy turn to price stability. If I have been dragged to the bottom of a swimming pool, holding my breath, is my situation stable?

There are genuinely positive trends, and one big puzzle. The true positives include some big drops in overall mortgage delinquency: in the last year, 18.9% in Nevada, 14.3% in Michigan, 21% in California, and 24.5% in Arizona. Total mortgages delinquent or in foreclosure have dropped by almost 900,000 in the last year.

Don’t get carried away just yet. Nationally, 12.3% of loans are still delinquent. 3,856,000 loans are 90+ days late or in foreclosure, down only 8% last year (LPS).

The puzzle: a nationwide drop in listed inventory for sale, down 21.5% last year, 11.5% of that in December alone. This is National Association of Realtors data, which given both hands and a mirror could not count both sides of its fanny and get to “two.” However, the decline is real and large, and normally a precursor to rising prices. This time we can’t tell how much is instead due to exhausted sellers, others fearful of discounts too deep, or with too little equity to hire a broker and have a down payment for the next home. We’ll hope, and see.

On the public policy front, the Federal government immobile and annoyed by Fed pleas for housing help, some states are moving. Florida has legislation pending which would make foreclosure easier. In the seventh year of fiddling and loan-mitigation pretense, there is no better sign than local governments wanting to get on with it. That’s a true marker of moving into the back half of this mess.

Poor graphic, but great data. The sort is based on column three, “Non-curr %”, highest top left, carr

ying to center column and then right. “Non-Curr %” includes all loans late to any degree.

 

 

 

 

 

Friday February 24th, 2012
By Lou Barnes

Taxes,Taxes,Taxes….. Time to file them!

| February 16th, 2012 | No Comments »

I am not a huge fan of memorizing the tax laws and going through the rigmarole of preparing my own taxes.  No way, no chance!  I work with a local CPA who saves me enough money and headache to justify the few hundred dollars that he charges me. And I am OK with that.  However if you do prepare your own taxes. I would recommend reading this article below.  Enjoy!

5 Little-Known Tax Deductions

By BILL BISCHOFF

It’s now officially time to get serious about filing your 2011 Form 1040, especially if you expect a refund. Here are five little-known write-offs that could make your refund bigger or cut what you owe.

 

1. Medicare Insurance and Long-Term Care Premiums

You can claim a Schedule A itemized deduction for unreimbursed medical expenses, including health insurance premiums, to they extent they exceed 7.5% of your adjusted gross income, or AGI. (AGI is the number at the bottom of Page 1 of your Form 1040.) The 7.5%-of-AGI hurdle may seem insurmountable, but seniors can often clear it–especially if they remember to include the following in the medical expense pot:

*Premiums for Medicare Part B coverage. For 2011, the per-person Part B premium for most folks was $96.40 per month ($1,157 for the year). For higher-income folks, the premium could be as much as $369.10 per month ($4,429 for the year).

Experts Explain: How to Choose a Tax Preparer

2:46
Some tips to get the most for your money when picking a tax pro.

*Premiums for Medicare Part C coverage (so-called Medicare Advantage HMO-type coverage).

*Premiums for Medicare Part D coverage (for prescription drugs).

*Premiums for Medicare supplemental insurance (so-called Medigap coverage).

*Premiums for qualified long-term care insurance, subject to the following age-based limits for each covered person.

Age of Covered Person on 12/31/11 Deductible Limit
40 or younger $340
41 to 50 640
51 to 60 1,270
61 to 70 3,390
71 and up 4,240
Sources: IRS instructions to Schedule A and IRS Publication 502 (Medical and Dental Expenses).

2. Medical Expenses Paid by Someone Else

As explained above, you can only deduct unreimbursed medical expenses to the extent they exceed 7.5% of your AGI. In a 2010 Tax Court decision, the IRS argued that a daughter could not deduct some medical expenses because she did not pay for them with her own money. Instead, her mother covered the expenses by directly paying the medical service providers. The Tax Court disagreed. The facts of the case demonstrated that the mother intended the payments to be gifts. Therefore, the Tax Court characterized the transactions as gifts from the mother to the daughter followed by payment of the expenses by the daughter with the gifted funds. So the daughter was allowed to count $24,559 of medical expenses that were actually paid by her mother in calculating her medical expense deduction. Source: Judith Lang, TC Memo 2010-286 (2010).
Experts Explain: How to Handle an Audit

3:26
What you can expect if the IRS shows up at your door.

Important Point: When you directly pay medical expenses for a person who is your dependent (meaning you pay over 50% of that person’s total support for the year), you can add the expenses you pay for the dependent to your own expenses and claim a deduction for the total to the extent it exceeds 7.5% of your AGI. That rule would have applied to the mother in this case if the daughter had been the mother’s dependent. Apparently she was not, so the deduction for the daughter’s expenses belonged to the daughter rather than the mother.

3. Real Estate Taxes Paid by Someone Else

The daughter in the 2010 Tax Court decision mentioned above was also allowed to claim an itemized deduction for $5,508 of local real estate taxes that were paid directly to the taxing authorities by her mother. Once again, the facts of the case demonstrated that the mother intended the payments to be gifts. Therefore, the Tax Court characterized the transactions as gifts from the mother to the daughter followed by payment of the taxes by the daughter with the gifted funds. So the daughter was allowed to deduct the taxes that were actually paid by the mother. Source: Judith Lang, TC Memo 2010-286 (2010).

4. Home Mortgage Points Paid by Someone Else

Assuming you itemize deductions, you can write off points (including loan origination fees) that you pay to take out a mortgage to buy your principal residence. Surprisingly enough, you can also deduct mortgage points paid by the seller on your behalf to sweeten the deal. In fact, the IRS actually requires you to claim the deduction. If this happened to you last year, don’t ask questions! Just follow the government’s directions and claim a deduction for the seller-paid points on Line 10 or 12 of your Schedule A. Source: IRS Revenue Procedure 94-27.

5. Fees to Charge Taxes to Your Credit Card

Surprisingly enough, the IRS says you can treat credit card convenience fees paid to charge personal income tax bills (including estimated tax payments) as miscellaneous itemized deduction items reported on Line 23 of your Schedule A. Source: IRS instructions to Schedule A. This favorable rule apparently applies to fees to charge both federal and state income taxes. However, you only get a write-off to the extent your total miscellaneous itemized deductions exceed 2% of AGI (other miscellaneous expenses include unreimbursed employee business expenses, union dues, job hunting expenses, fees for tax preparation and advice, and investment expenses). Fill out lines 21-27 of Schedule A to see if you can benefit from claiming miscellaneous itemized deductions.

 

ALSO SEE

5 Ways to Avoid an IRS Audit
The Tax Implications of Foreclosures
Should Married Couples File Separately?

I still live at home with my parents!

| February 8th, 2012 | No Comments »

Below is an interesting article that I read in the The Fiscal Times.

How Clinging to Mommy and Daddy is Ruining a Generation 

By BLAIRE BRIODY, The Fiscal Times
February 8, 2012As children grow up and venture out into the world, the transition from a bustling household to an empty one can be difficult – so, why not skip it all together? That’s what millions of families are doing, not just in the U.S., but across many developed countries. In Italy, the culture of “mammismo” or mamma’s boys, is widely accepted – today, 37 percent of men age thirty have never lived away from home. In Japan, “parasite singles” are chastised in the media for depending on mom and dad, but having few other options, they do it anyway.

 

RELATED: The ‘Take Care of Me’ Society is Wrecking the USA

In the U.S. the proportion of people age 30 to 34 living with their parents has grown by 50 percent since the 1970s, and the recession has only made things worse. In 2010, over 5.5 million young adults moved back home with their parents, a 15 percent increase from 2007. The shift is so widespread, parenting guides for this stage of life are even starting to crop up, like the recent How to Raise Your Adult Children. Author Katherine S. Newman explores the effects of this growing phenomenon in The Accordion Family: Boomerang Kids, Anxious Parents, and the Private Toll of Global Competition, and talks with The Fiscal Times about the troubling future consequences of this new family structure.

The Fiscal Times (TFT): When did you first notice there was a major shift happening with young adults?
Katherine S. Newman (KN): I traveled pretty widely in Europe from 2003 to 2004 and many parents I talked to still had children at home who were in their 30s. I was very surprised by this. They explained to me that so did all their neighbors, so there’s nothing unusual about it. And in Italy, they would say what’s wrong with this? Why would he ever leave me? I kept thinking, this is so strange, if this happened in my family I would think something had gone dreadfully wrong. I realized that this is a growing phenomenon in especially southern Europe, the welfare states, and then I would get up to northern Europe, the Nordic countries, and there was no hint of this. Everyone’s kids were gone at 18 and if they were still home there was something very bizarre about that. I wanted to find out why this is happening and how widespread the phenomenon was.

TFT: So has something gone dreadfully wrong in these families?
KN: Well, something has gone wrong in the way entry-level workers are faring in the labor market. You saw it beginning in the mid 80s when there was downsizing, outsourcing, and contingent work, and competition was heating up. Many countries responded by liberalizing their labor laws and new entrants into the labor market couldn’t protect themselves. I think something has gone seriously wrong in the opportunity structure for young and now not-so-young people entering the labor market. And families are now the private safety net. If you look at the Nordic countries which also have a very high youth unemployment problem, they don’t have accordion families. And that’s because they erected a whole series of policies that more or less ensure that young people don’t have these barriers.

TFT: How is this changing the definition of adulthood?
KN: Adulthood used to be marked by very obvious and objective markers – the completion of education, marriage, an independent household, starting your own family, etc., but those elements have now been pushed off so far in the future that people are starting to develop a more subjective definition of adulthood. It’s not about whether you have achieved those hurdles, it’s do you feel more responsible? Do you imagine yourself as more autonomous? Do you think you are different than you were when you were 18? There is a genuinely surprising relaxation of all of the metrics that used to signal adulthood.

What I found interesting was that this change has taken place rapidly enough that in many American households and elsewhere in the world, you have two generations side by side with very different visions of adulthood. You have the parents who believed some of these objective markers were the absolute definition of adulthood, but their children have a very different economic history. And together they’re trying to negotiate a new definition.

TFT: In the U.S., are parents happy about this shift? Or uncomfortable?
KN: It’s a mixed bag. For many parents, they weren’t tired of their kids by the time they turned 18. And when they went off to college, they were lonely for them. There was a certain joy in their return, and in part that’s because they’re not returning in the same form. The parents no longer have heavy surveillance obligations, like is Johnny home by midnight? Has Mary done her homework? They’re able to shed many of the things that produced tension in the teenage years. It’s quite positive as long as it doesn’t appear to be permanent. But it’s not always easy. Sometimes children in the household aren’t making the progress their parents are looking for and it triggers those anxieties. Or they forget they are entering a household that has established or new divisions of labor. Suddenly the kids are dropping their clothes on the floor and expecting somebody else to make dinner, and assuming the childlike role they had.
——————————————————————————–
This experience has also delayed a transition that the parents otherwise would’ve gone through – they would have become empty nesters and been looking for grandchildren, but they’re not going through either of those things. And to the extent that we connect age and social roles, they’re not getting old. It’s like a little fountain of youth. They feel young compared to their parents who were done with this phase of life by the time they were 50.

TFT: What are the consequences of this? In some ways, can parents be trapping their kids?
KN: It can be worrying, and they do sometimes worry that they are making it too easy for their kids not to grow up and face the music. And the music is pretty harsh right now in the labor market. Parents do often wonder if they are making a mistake by cushioning that transition too long or too much. There’s no road map for this, and Americans are particularly bad at social situations that lack a road map. There is a certain amount of anxiety. Even when people find themselves enjoying this station of life, they wonder if they should be.

TFT: What about future consequences? If more jobs are in the cities, are people not getting job opportunities because they’re at home, or maybe they’re not meeting someone to marry because they’re home all the time?
KN: There are certainly consequences that may not have been thought out if people stay home for a longer time. If you marry when you’re a woman of 32 or 33, well you’re not going to have four children. Biologically that’s not going to happen. People are having smaller families. And they’re going to be older when their children are born and that has consequences as well.

In the U.S., we don’t have a serious fertility problem because we have a significant immigrant population, which tend to have larger families. But if you subtracted the immigrants we wouldn’t look all that different from countries that are now suffering the consequences of very very low fertility, which usually means lower productivity. There are parts of this country where you can see very similar outcomes to what’s happening in Japan. There are a gazillion ways these demographic dynamics change the social landscape.

TFT: If this generation, who has lived with their parents and always had a support system, fall on hard times, how are they going to deal with it? How could this affect them psychologically?
KN: Psychologically it will be difficult and materially it will be difficult. Young people won’t get into the housing market because they can’t. They won’t accumulate equity like earlier generations did. They won’t have the resources to help their parents when they’re elderly. They’re going to be waiting for an inheritance which may not be there. The whole run-up to that accumulation that defined middle class life in the past will not happen, or won’t happen in the same way. My parents bought their first house when they were 23 and 25. I bought my first house when I was nearly 30. I don’t think my children will be in the homeownership market until they’re closer to mid-30s or older. In a system like ours where so much of a family’s wealth is tied up in housing, that affects the overall wealth profile and distribution across the country. And that matters for everything – retirement, helping the older generation, affording a college education – there’s virtually no aspect of American material life that’s left unaffected by this.

TFT: Has the stigma gone away in the U.S.?
KN: Not entirely. The lingering evidence in the stigma is in the sort of discomfort that people have. But I do think that it’s starting to wear away and that’s because it’s such a widespread experience. Today 85 percent of college graduates have either come home or have stayed home.

TFT: On the plus side, if these boomerang kids do become financially established, will they then return the favor and invite their parents to live out old age with them?
KN: I do. I think they will be in many ways closer to their parents than previous generations. And we are seeing a lot more elective family consolidation. People who are deciding that it’s financially prudent for the generations to live together – for the grandparents to help raise grandchildren, etc. A developer in California that has decided there’s a huge market in houses that have what he calls granny apartments inside them. He’s marketing a whole form of real estate that hadn’t really existed before.

Read the full article

Credit News by Lou Barnes – Friday February 3rd, 2012

| February 6th, 2012 | No Comments »


In a double surprise, the job market may at last have begun to revive, but the double-the-forecast, 243,000-job surge in January has done little harm to mortgages. We are still near 4.00%; 10-year T-notes up from 1.82%, but holding nicely at 1.95%.

Ordinarily a payroll jump like this would have killed us, especially in combination with strong results in the two ISM surveys for January: manufacturing to 54.1 from 53.1 in December, and service-sector way up to 56.8 from 52.6 last month. Some of the calm reaction in markets is suspicion — few other data confirm a big economic turn. Europe is a continuing cause of deep anxiety, but quiet this week, nothing but the muffled clanking of picks and shovels in the bottom of its ever-deeper hole.

And housing hangs over everything in the US economy, all measures of prices in continuing decline through December. But, to his great credit, Mr. Obama devoted a speech this week to housing, including new proposals. “This housing crisis struck right at the heart of what it means to be middle class in America: our homes.” Right!

The proposals will be without effect, but that’s not Mr. Obama’s fault. That two years have passed without proposals or priority or even mention, that is his fault, but give him full praise for saying out loud: “Hey, there’s an elephant in this living room!” Why there are no effective proposals, and why it’s beyond even the President’s power to put them forward is a tale of human nature. We know perfectly well what to do, but several things in ourselves and our political process prevent action.

Federal housing finance agencies created in the Great Depression were by far the most effective aspect of the New Deal, perhaps more so than all the rest put together. Aside from restoration of credit, the miracle of government guarantee made mortgage lending easy as apple pie. Guarantee and uniform underwriting standards — sound ones! — made previously illiquid and expensive mortgages as easy to transfer as shares of stock, and cheap, long after the Depression was gone.

For good or ill, as early as the end of WW II our homes became the stores of our national household wealth. Got to put it someplace. Stock market guys would like it to be their market, but it has its own epic instability. Houses it was. The original stop-the-Depression charter of the mortgage agencies became ordinary everyday-everybody utilities. We let them bloat, 1985-2004, for the interest of their stockholders, an inherently unstable situation. Even before mortgage credit went bonkers, ca. 2002, and the push for home ownership ran beyond qualified candidates, the ease of mortgage finance had likely over-fed housing wealth.

Here in the aftermath of the Bubble it is convenient to have someone to blame for our pain. “Fannie and Freddie” have become curse words. Profanities. They were NOT responsible for the $2 trillion in toxic loans, but they are big, fat targets for the Right, hating all government, also oddly the agencies’ boosters on the Left. Hell hath no fury like a social engineer scorned.

The truly culpable parties — Wall Street bankers — have made a clean getaway. John Dillinger and Clyde Barrow would still be in business if they had gone to Princeton, gotten MBAs, and learned to lie properly.

The result is self-inflicted paralysis. The plain-sight truth: for housing to recover we must re-activate Fannie. In a time of falling collateral value, private lenders cannot lend, and we must rely on government guarantee. That’s as certain as the Pope’s religion and behavior by bears in woods. However, reactivation is impossible without leadership to explain what happened and what did not, and that rhetorical task might be beyond FDR himself. In every financial crisis, senior bankers have been available to explain and structure recovery, but this time the bankers’ conduct before, during, and after has been so without conscience that it may be another generation before financial-market Pooh-Bahs can earn back trust. If they tried, which they have not.

The politicians are prisoners of a homicidally angry people, and we’re going to stay in this pickle until we get over it.

The turn in these ISM surveys may be even more important than the often-revised payroll survey.


Credit News by Lou Barnes – January 27, 2012

| January 31st, 2012 | No Comments »

“‘Stranger and stranger’, said Alice,” and so it was this week at the Fed, in Europe, and Mr. Obama’s State of the Union.

Some brave souls thought the Fed would surprise by rolling out QE3, and begin to buy more MBS, driving mortgage rates down. Everyone expected a pair of meaningless inside-Fed jokes (more transparency, and an inflation target) and we got those. Nobody expected this: to extend its zero-percent rate from 2013 to the end of 2014.

Bonds have rallied, the 10-year T-note back down to 1.92% and mortgages close to 4.00%, markets still adjusting. Bernanke’s term expires a year before the end of the new zero-rate period! 2014 is so far off in the economic future that nobody can know its conditions, but you can bet — bet a lot — that the Fed would make a three-year commitment only if it is seriously worried. That anxiety has penetrated even the stock market, which has sold off for the first time in years after a new easing by the Fed. The Fed’s concern was justified by today’s weaker-than-looks Q4 GDP report.

Europe… the ECB will NOT allow a bank to fail. Those dominoes are off the table. The ECB may or may not play the ultimate card, buying or second-stage monetizing Club Med wallpaper, but banks will not be the trigger for ultimate euro collapse.

However, the underlying disaster is still rolling along. Christine LaGarde, French Minister of Finance until last summer, now Managing Director of the IMF, this week delivered a speech worthy of the White Queen. “Why, sometimes I’ve believed as many as six impossible things before breakfast.” In grand French style, her speech soooo important, soooo without consequence: demand European growth measures simultaneous with cutting spending and raising taxes; a larger financial firewall but no source for the money; and deeper integration among cultures farther apart every day. Banks not in play, European economies will determine the next stage there.

“The state of the union is getting stronger.” Uh-huh. Fifteen hours and fifteen minutes after the President spoke those words, the Fed announced an economy in such peril that its previously unprecedented aid would extend over the horizon.

Okay. All Presidents have the right to use lipstick. However, forty minutes and 58 paragraphs into his words, words, and words, the President first mentioned “homeowner.” Gave it three sentences to describe a refinance proposal that does not exist and will not. Three weeks after the Fed Chairman, a Fed White Paper, and four other Fed governors and regional presidents identified housing as the most serious risk to the economy, why it is, and what to do about it… three empty sentences in the SOU.

The 12th and 69th paragraphs (only) contained the word “deficit” in self-congratulation for last year’s painful mini-cut. Nowhere in the speech was a reference to a domestic spending cut or planned spending discipline of any kind.

We are entering the second year of an inert White House. Blame the Tea party, rightly, but a second year with no meaningful, Congressional pass-able economic proposal? At all? When in modern times has the White House been so dormant?

FDR was active, heaven knows. Some still argue about what he did, but not that he tried with mighty invention. Harry Truman let no grass grow in a deadly time and with a hostile Congress. Ike knew how to use staff better than anybody; it got him time for golf, but he got stuff done, and ornery Democrat Sam Rayburn ran Congress. JFK’s two years had questionable result, but action! Statues of LBJ would be common had he not become entangled in Vietnam, as any President might in 1965. Odd, brilliant Dick Nixon was plenty productive until the last six months, and never had a Republican Congress. Gerry Ford restored faith and fought inflation. Jimmy Carter never connected, and micromanaged his way to oblivion, but was anything but asleep. Anything Ron Reagan got done in eight years had to be negotiated with Tip O’Neil. Daddy Bush faced nothing but Democrats, and Bill Clinton had to make deals with the Mad Hatter. Newt.

These last 11 years… I find no parallel except the emptiness of Harding and Coolidge. Hell, even Herbert Hoover tried hard.

Fourth Quarter GDP arrived plus 2.8%, but consumer spending rose only 2.0% (after all that media jive through the holidays), and the savings rate fell below 4%, leaving little slack in household budgets. Inventory rebuilding aside, GDP rose only 0.8%, and that was boosted by an improbable 10.9% jump in residential construction, likely to be revised closer to Q3′s 1.3% gain.

2012january27 300x197 Credit News by Lou Barnes – January 27, 2012