TigerSoft News Service
7/27/2008
www.tigersoft.com
SWEETHEART 2008 HOUSING BILL:
1) IT BAILS OUT MORTGAGE LENDERS,
2) PROPS UP BLOATED HOUSING
PRICES,
3) PREVENTS HOUSING FROM
BECOMING AFFORDABLE,
4) ADDS ANOTHER TRILLION DOLLARS
TO US NATIONAL DEBT, WHICH MAY
REALLY SPOOK STOCK MARKET.
(See Peerless Stock Market Timing
Chart at bottom of this page.)
and
5) HOME MORTGAGES THAT BANKS
DON'T WANT NOW BACK THE
US DOLLAR.
by William Schmidt, Ph.D.
Author of TigerSoft Insider Watch Software
Tiger Software - Helping Investors since 1981
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Despite the decline in the housing market, homes
are still not affordable to millions of Americans. For
most Americans, the new Housing Bill will make them
less affordable. It will artificially prop up home prices
by preventing foreclosures and giving an UNLIMITED
line of credit to mortgage company giants, Fannie Mae
and Freddie Mac. They now handle 75% of new home
mortgages. That percentage will rise sharply, as the
limit on the size of the mortgages guaranteed by
Fannie and Freddie is boosted from $417,000 to
$625,000,
So, if you liked the Federal Reserve's $300 billion
bailout of central banks, you'll love this Housing Bill.
The US Treasury can now buy ALL Fannie Mae and
Freddie Mac home mortgages. Previously, the
Treasury had been allowed to buy only $2.5 billion in
housing mortgage securities. Now there are no limits.
The Dollar is now to be backed up by home
mortgages that banks cannot sell because nobody
wants them.!
More Affordable Housing?
(1) States will get $4 billion in assistance in buying
up boarded-up, foreclosed homes. They may offer
some of these to those who promise to fix them up.
(2) Down payments for FHA loans are dropped
to $3.0% from 3.5%.
(3) New home buyers are thrown a tax credit of
$7,500 in the new housing law.
The changes will help some people. But banks'
lending standards are now much tighter. The 20%
decline in home prices in California, for example,
means little when the median home price is still over
$659,000 in many suburbs of San Francisco, Los
Angeles and California. The central problem is
that housing prices are still way too high for most
working people. |Left to the free market, home prices
would certainly fall much more sharply. Such declines
would make homes more affordable. But Congress
is under too much pressure from banks to allow
a free market. So, risk has been nationalized
and profits have been subsidized.
Real Incomes Drop in US
as Wealth Concentration Accelerates.
Real incomes are dropping every bit as fast as
housing prices in the economic slowdown. With
gas prices now over $4.10 a gallon, someone
driving $12,000 miles a year, and getting 20 miles
per gallon, who is paying $2.00 a gallon more than
even two years ago, has $1200 less a year to spend.
Couple that with a real inflation rate of 6% to 7% a
year, and you can see the problem. Wealth is
just too concentrated to let ordinary working
people buy new houses. The richest 1% own
more than 90% of the wealth in the US. This is
the highest figure since 1928. In 1976, the top
one percent received 8.83% of the national
income. In 2005, it reached nearly 22%. The
average CEO now makes almost 400 times what
an average worker is paid. In 1980 the ratio
was 40:1. More than 45 million people in the
US have no health insurance. One in six children
live in poverty.
Speculative Housing Bubble
Housing inventories are still bloated, the most
"bloated in a generation". In Southern California,
real estate spokesmen talk of a year's inventory.
As in all speculative bubbles, prices zoomed
upwards into fantasy land. They rose for more
than ten years. People began to feel that they
could only go up, never down. Terms were easy.
Rates were low and you could speculate with
zero-down. In this environment, builders built
too much. And anyone who could remotely
afford a house, bought one. Few buyers
were left. Bids disappeared. Speculators
had to dump their condos and second homes.
HOUSING BILL'S DETAILS
The 2008 Housing Bill has now
passed the
House and the Senate. Sen. Dodd defended the
bill on CNN as being designed primarily for
relief of those who were duped into buying a house by
unscrupulous lenders. He insisted that everyone
benefits from preventing foreclosures. He did not
address what will happen if, despite the new Housing Bill
housing prices fall, say, 20% or 30%, as many expect,
or there is no economic recovery and homeowners walk
away from their mortgage, either of necessity or by
prudent choice.
A key provision is
that the banks can get FHA
full insurance on their most troubled mortgages if
they accept a 10% write-off of the original mortgage
and are willing to pay a 3% insurance fee. $300,000,000
is set aside for this new program. But, what if people
still cannot afford the reduced mortgage? It still may
make more economic sense, if equity is below zero,
for the homeowner to walk away from the mortgage.
So, the government's effort to prop up prices may
well fail. In that case, the Federal Government
could lose more than a trillion dollars. Then there
would be nothing left in its coffers to stimulate housing,
rebuild the national infrastructure, offer universal health
care or much of anything else, other than pay for
the US military which now costs $800 billion a year.
Dodd's Sweetheart Deal
The CNN interviewer failed to ask Dodd how much
his support for this bill and the bailout of Freddie
Mae was due to his cozy relationship with the
mortgage industry. Dodd and Senate
Democrats
received got
$31,000 from
Freddie Mac in campaign
contributions.
In 2003, Dodd received preferential
treatment from Countrywide Finance, now Bank
of America, in refinancing two homes, saving him
$15,000 a year. (See bottom of this page and
http://www.portfolio.com/news-markets/top-5/2008/06/12/Countrywide-Loan-Scandal
)
This is a lenders' and homeowners' subsidy bill.
Its real purpose is to prop up home prices long enough
for lenders to find someone new to sell the mortgages
to. It is not designed to make homes more affordable.
The Government is now the "bad-debt buyer of last
resort." Source.
To accommodate the cost of the new
legislation, Congress raised the US National Debt
limit by $800 billion, to $10.6 trillion. Source.
7/25 The President will sign the Housing Bill.
The Senate (72 to 13) got up early and voted
approval. This offers banks full insurance on their
troubled mortgages if they accept a 10% write off
and will pay a 3% insurance fee. At this point, the
most the federal government (FHA) can insure
and lose here is only $300 billion. Source.
Nearly
$4 billion is included for local governments to buy
and refurbish foreclosed properties.
7/25 Freddie Mac and Fannie Mae are guaranteed
not to fail. The Federal Government will either
give
them an unlimited line of credit or buy stock in
them.
There will be no nationalization. No change in
CEOs.
No close inspection of their books. CEOs and
their Directors' entourage will not be stopped from
milking these companies for whatever they can
manage. In
2007, the current Chairman of Freddie
Mac
pocketed nearly $19.8 million. At this point, the
most the federal government can lose is $5.2
trillion!
It is quite possible that the Federal Government
will spend all its resources bailing out mortgage
insurers while housing still is inflated and has
not corrected more than 20% of its bubble from
1995 to 2006. A 50% retracement in prices
might be expected. In Australia, economists are
warning their banks that the $450 billion in US
write-downs for bad housing should be expected to
go to $1.3 trillion in the next two years. Source.
7/25
WS Journal's Critique of New Housing Bill:
(1) Where the mortgages have been bundled and
sold to another party, there is no lender who can
write down the principal. In most cases, the
contracts
prohibit alteration.
(2) Second mortgagers are not protected.
(3) The FHA is not staffed to handle hundreds of
thousands of refinancing. So, there will many
more repossessions.
(4) Lenders let FHA insure their worst loans.The
ones they feel comfortable with, they can adopt
a wait and see approach. Source.
7/25 Washington Mutual exchanged dubious
mortgage collateral for a Federal Reserve loan
of $10 billion last week. Source.
It has reported
losses of $6.6 billion in the last nine months,
$3.3 billion, in the last 3 months, owing to
losses for bad loans and mortgages.
7/25 Second quarter Foreclosures were triple
what they were in 2007. This was a rise of 14%
from the first quarter. This is much worse than
was expected. Source.
Nevada has the highest
percentage, 1 in 43 households. Source.
7/25 Two more banks, one in Nevada and the other
in California have gone bust. The FDIC says none
of their customers would lose a penny, because
the FED has arranged, without saying how, the
takeover of the banks by Mutual of Omaha Bank.
Source.
7/25 "(San Diego) home prices continue to decrease,
by another 4.6 percent in April according
to the Office of Federal Housing Enterprise
Oversight. However, the resulting improvement
in housing affordability may begin to stabilize
the market. There is still a large inventory of
unsold homes, which may take several months to
reduce, but most analysts expect the housing
market to begin recovery in 2009..."
Source.
This same source predicted a housing market
recovery by 2008. Source
7/24
The Fed provided $16.4 billion to commercial
banks based on collateral of dubious value,
compared with $13.9 the previous week. In early
April, the DAILY bank borrowings were as high as
$38.1 billion. Yahoo Source
McCain Votes for Bill, but
Criticizes It.
7/24 On July 24th, McCain backed the bailout
of FRE and FNM. Source.
On 7/24 the
headline
reads: McCain: Get Rid of Fannie Mae and
Freddie
Mac. McCain wrote "Americans should
be outraged at the latest sweetheart deal in
Washington. Congress will put U.S. taxpayers on
the hook for potentially hundreds of billions of dollars
to bail out Fannie Mae and Freddie Mac...Let us not
forget that the threat that Fannie Mae and Freddie
Mac pose to financial markets is a tribute to crony
capitalism that reflects the power of the Washington
establishment...Fannie and Freddie are the poster
children for a lack of transparency and accountability.
Fannie Mae employees deliberately manipulated
financial reports to trigger bonuses for senior
executives. Freddie Mac manipulated its earnings
by $5-billion....Fannie and Freddie's lobbyists
succeeded; Congress failed to act. They've stayed in
business, grown, and profited mightily by showering
money on lobbyists and favors on the Washington
establishment....We are stuck with the reality that they
have grown so large that we must support Fannie Mae
and Freddie Mac through the current rough spell.
But if a dime of taxpayer money ends up being directly
invested, the management and the board should
immediately be replaced, multimillion dollar salaries
should be cut, and bonuses and other compensation
should be eliminated. They should cease all lobbying
activities and drop all payments to outside lobbyists.
And taxpayers should be first in line for any
repayments."
Very good. But let's not forget how indebted
Sen.McCain was to the savings and loan super
star of crooks, Keating. Source.
He probably
sees that he will be hit with reminders of this in the
coming campaign and wants to head off the criticism.
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Charles Keating was convicted of racketeering and fraud in both state and federal court after his Lincoln Savings & Loan collapsed, costing the taxpayers $3.4 billion. His convictions were overturned on technicalities; for example, the federal conviction was overturned because jurors had heard about his state conviction, and his state charges because Judge Lance Ito (yes, that judge) screwed up jury instructions. Neither court cleared him, and he faces new trials in both courts.)
Though he was not convicted of anything, McCain intervened on behalf of Charles Keating after Keating gave McCain at least $112,00 in contributions. In the mid-1980s, McCain made at least 9 trips on Keating's airplanes, and 3 of those were to Keating's luxurious retreat in the Bahamas. McCain's wife and father-in-law also were the largest investors (at $350,000) in a Keating shopping center; the Phoenix New Times called it a "sweetheart deal." ( http://www.realchange.org/mccain.htm )
"Countrywide made two loans at special rates to Dodd in 2003 to refinance homes in Washington and East Haddam, Conn.The loans were reportedly part of a "V.I.P." program that gave preferential rates to "friends" of the company's chairman and chief executive, Angelo Mozilo. In 2003 Dodd got a 4.25 percent interest rate on a $506,000 refinancing loan for his Washington town house, and a 4.5 percent rate on the $275,000 loan on his East Haddam home. Most people would have been paying
2% higher. So, Countrywide saved Dodd $15,000 a year.
Dodd claims if he had known he was getting preferential
treatment he would have walked away from the loan. As the leading Democrat on the Senate Banking Committee, it is
almost certain he knew what mortgages were going for.
(Source: http://www.huffingtonpost.com/2008/06/23/dodd-repeats-denial-of-mo_n_108725.html )
House Republican Leader, Boehner, charges that Dodd and Barney Franks have refused to let Congress investigate VIP loans from mortgage lenders and banks to members of Congress. He charges that Bank of America wrote much of the legislation.
Source. The stock jumped more than 50% as news of the
bill's provisions got publicity.
Bush and McCain Share A Moment Together.
That is
the amount the US national government is now in debt.http://www.brillig.com/debt_clock/
The Bush Administration today estimated that the 2009 federal
deficit will be nearly a half a trillion dollars. This is $83 billion
more than what they estimated in February. Source.
The amount of money involved in saving the banks, homeowners
and housing industry may soon exhaust the country's ability to
borrow money, except at much higher rates. It's either that
or print billions and billions of more paper dollars. This will surely
weaken the US Dollar much further. Add in the $3 trillion
cost of the unnecessary and foolish war on Iraq, and you
see how rapidly the US is becoming a nation that is hopelessly
in debt. Wastefully, the US spends nearly a trillion a year on
its military budget, much more than all the other countries on
earth. Meanwhile bridges collapse and its working class must
hold two jobs to support a family. There is no solution because
the US constitution forbids taxing wealth as opposed to income,
and because sizeable wealth is often put overseas in secret
bank accounts so that income cannot be taxed.
If you like what Bush has done to the US, McCain is
certainly who you will vote for in November.
Don't They Make A Couple To Remember.
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