[bsrsharma]

TheBreeze – This

Indeed, what was once a problem confined mostly to economically struggling areas is quickly becoming a national phenomenon. Last year, there were 1.2 million foreclosure filings in the United States, up 42 percent from 2005, according to RealtyTrac, a firm that analyzes such data. At current rates so far this year, RealtyTrac expects foreclosure filings to hit two million in 2007, or roughly one per 62 American households — a rate approaching heights not seen since the Great Depression.

is from http://www.nytimes.com/2007/09/02/business/yourmoney/02village.html

I have seen these (1.2 million for 2006, 2 million in 2007) expected to add up to 7 million over 3 to 4 year period. Since all ARMs haven’t reset yet, the worst is yet to come. It may crest at 4 million per year in 2008 & 2009.

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capeman – since you have researched CFC so much, can you clarify this for me:

How do you rationalize these two statements:

• CFC does not have direct access to the window due to lack of acceptable collateral
• if insolvency rears up and kicks CFC back the CD customers may have to get their money back from the FDIC instead.

If their paper is not good enough for FED, how are the regulators allowing it as collateral for FDIC insured funds? It is like FED is more risk averse than FDIC (well OTS really)

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which brings my risk to a very low level if any at all.

Don't ever compare a leveraged commodity money market with FDIC insured bank deposits! You can lose that all in a heartbeat. Just happened recently with a Chicago fund. FDIC insured CD is as good as cash (subject to limits).

[bsrsharma]

How have I learned my lesson?

I too have libertarian feelings. But you are dealing with 2 million families. That is a lot of voters with discontent in an election year. Least painful method is to burden the major costs to lenders, slowly enough that they are injured but not killed. The borrowers have been punished by loss of ownership anyway. Why walk over them some more? I am much more keen on seeing risk aversion in more sophisticated lenders than in lay borrowers. Nothing better than the festering wound of a mountain of REOs on their balance sheets.

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SD – you analysis is somewhat like this analogy: You have a bad tire and driving on the fast lane of a freeway at 70 mph. Would you rather have a puncture and pull over to an exit or shoulder or “get it all over with” and have a blowout?

The “far healthier” “bath now” approach will liquidate many more banks like Countrywide. Even FDIC may have to pay up the depositors. A puncture instead of a blowout will allow the banks to continue business, take losses and limp along. Like Ford & GM rather than U.S.Steel & RCA (remember them?).

Debt bubble will be cured because, being in crisis mode for a long time, the banks will be super risk averse and never make a bad loan. That is healthy in the long run. If they all blowout on the other hand, a new breed of Cowboys will be born again from the ashes and the cycle will continue. It is good to have an army of wounded veterans to preserve the institutional memory.

I am all for personal responsibility. But if a lender gave NINJNA loans, I think REO is written in watermark on all those no cash down/exploding ARM mortgages.

[bsrsharma]

entitlement Tsunami

That is when the leading edge of baby boomers start enrolling in Medicare & Social security. The Social security trust fund IOUs have to be paid by the treasury. Treasury will be compelled to borrow increasing amounts just so that medicare & social security checks can be sent out. That increase in debt will enter the economy as inflation. That will in turn lower $ exchange rate causing further inflation in imported goods. This is all pretty much on autopilot and their is no way out. If you think this housing bubble is a problem, you should see some of those numbers. They are in tens of Trillions. That is 13 zeroes.

[bsrsharma]

government hyperinflates

Can't happen without FED becoming a pimp. FED knows that will be the end of $ and with that we will become another ex-Soviet Union. Don't start losing sleep (as yet) over it. If you have to worry about something, start worrying about the entitlement Tsunami that will start hitting around 2011.

 

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What is the difference SD? Bank owns the REO and the ex-owner now rents at $1000 per month instead of paying $3000 per month mortgage. Banks/dumbvestors get stiffed. No bill to taxpayers. Housing for ex-owners. Everybody wins (well, almost). Banks/dumbvestors take a bath. What is there NOT to like. Once bitten, the lenders will demand upwards of 40% down payment for any purchase. Debt bubble completely cured. Time to celebrate!

[bsrsharma]

This NYT artcle tells how the implosion has become a neutron bomb for a Ohio suburb.

Can the Mortgage Crisis Swallow a Town?

Maple Heights, Ohio

TAMMI and Charles Eggleston never took out a risky mortgage, never borrowed more than they could afford and never missed a monthly payment on their neat, three-bedroom colonial in the Cleveland suburbs. But that hasn’t prevented them from getting caught in the undertow of the subprime mortgage mess now submerging this town.

Over the last 18 months, the Egglestons have watched one house after another on their street, Gardenview Drive, end up foreclosed and vacant. Although lawns are still tidy and empty homes are not boarded up and stripped as they are in inner-city Cleveland, the Egglestons say Maple Heights no longer feels safe after dark. Nor do they have the confidence they had when they moved in a decade ago that this is the ideal place to raise their 6-year-old twin girls, Sydney and Shelby. So, in May 2006, they put their home on the market in order to move closer to Mrs. Eggleston’s parents in another middle-class Cleveland suburb, Richmond Heights.

They have had no takers. Although they lowered the asking price to $99,000 from $109,000, no one has even come to look at it in more than six weeks. “My heart panics every time I drive down the street and I see another for-sale sign,” says Mrs. Eggleston, pointing past the placards in front of her porch to others that dot surrounding yards like lawn furniture. “Some people on the street couldn’t pay, so they just left. The competition to sell is just ridiculous.”….

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Finally the unmentionable words are being spoken!

It’s going to be very bad news. People will see large drops in the prices of their homes…..This is worse than the 1990s’ recession — Losing $150,000 on a home will affect their living standards for a long, long time.—-California is very vulnerable.—I don’t know how we can avoid recession—

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John – It is interesting that you went back to a place where you lived for 15 years and found you didn’t like it. It is also good to see Californians counted as good people. Many try to portray Californians as greedy, rootless and shallow with no sense of community. (Time magazine had an article headlined “The Great Wild Californicated West” in ….1972)

Any clue why Atlanta area has the largest “For Sale” inventory in the nation?

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I am never leaving again.

jficquette – can you elaborate a bit? Are you a native of Atlanta area? I have seen that Atlanta area has the largest inventory for sale and it has puzzled me why. You probably had a pretty negative experience to give up within a year of relocating there.

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wanttobuy – I am not sure if I saw this reasoning in any comment, so I can add it:

There is a high probability that there may be a severe recession by next year. More so in San Diego & California than nationally. This is due to the large part that home building contributed to GDP in those areas. So one aspect you may think through is, play out a severe recession scenario for 6 months to a year and see how your finances and employment may hold up. If it has only a marginal impact on your finances, then you are in a very good position. However, if there may be a need to relocate for employment, the house may become a shackle.

[bsrsharma]

larger-scale government intervention

LA: If it is any consolation, US debt limit is now $9 Trillion. And the government is already close to touching it. There is little chance of increasing that limit in a political year without creating a Ross Perot (or Ralph Nader) type populist firestorm. Ron Paul is already sounding like a insurgent. Every available red cent will be used to finance Bush's pet project – Iraq. The only large-scale intervention I can imagine is lot of Katrina style FEMA trailers (built by Halliburton?) for the newly homeless

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LA: I completely agree with Barons analysis. Bush played a masterful stroke by giving very little but appeared compassionate. So many people are counting it as “bail out”. That shows his genius (can you believe it?).

This problem of credit crunch will only get corrected over a long period of Stagflation. Repeat 1974-1982 all over. Any attempt by BB to seriously meddle with FFR means Argentina-Brazil-Russia style crisis. Start thinking of $10 gas if you think $4 is painful. (Oh, BTW, then Ford & GM will be bankrupt, Chrysler liquidated – a million ex-autoworkers. Rustbelt will resemble Mexico). Any politician who thinks we have problems should live in a third world country for a few months to know what Capital Flight means.

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