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……The point about the sub-prime mess that everyone seems to be missing is this: a high percentage of mortgages in these “bubble” markets (including refinance and second loan deals) now exceed, or will soon exceed, the sales value of the underlying asset. That’s all mortgages. Prime or sub-prime. Furthermore, purchase home values will tend to decrease until there is some reasonable equilibrium between rental and purchase home values. Or to put it another way: why would I pay $268 per square foot for a purchase property when I can rent an equivalent house for $195 per square foot? ( For lower quality properties, and assuming a 7% gross ROI, this means the owner occupant who pays $1.81 per square foot per month can reduce cash outlays to $1.14 per square foot per month by renting an equivalent unit). The Fed, the Bank of England and the European Central Bank are exploring the feasibility of using taxpayers’ money to shore up the mortgage-backed securities market, the Financial Times reported on March 22 [...] There was a time, not too long ago, when Washington did regulate banks. The Depression triggered the creation of government bank regulations and agencies, such as the Federal Deposit Insurance Corporation (FDIC), the Federal Home Loan Bank System, Home Owners Loan Corporation (HOLC), Fannie Mae, and the Federal Housing Administration (FHA), to protect consumers and expand homeownership. After World War II, until the late 1970s, the system worked. The savings-and-loan industry was highly regulated by the federal government, with a mission to take people’s deposits and then provide loans for the sole purpose of helping people buy homes to live in. Washington insured those loans through the FDIC, provided mortgage discounts through FHA and the Veterans Administration, created a secondary mortgage market to guarantee a steady flow of capital, and required S&Ls to make predictable 30-year fixed loans. The result was a steady increase in homeownership and few foreclosures. Into this vacuum stepped banks, mortgage lenders, and scam artists, looking for ways to make big profits from consumers desperate for the American Dream of homeownership. They invented new “loan products” that put borrowers at risk. Thus was born the subprime market. Big mortgage finance companies and banks cashed in on subprime loans. These include Household Finance, New Century, Countywide, CitiMortgage, WMC Mortgage, Fremont Investment, Ameriquest, Option One, Wells Fargo, and First Franklin. The executives and officers of some of these companies cashed out before the market crashed, most notably Angelo Mozilo, the CEO of Countrywide Financial, the largest subprime lender. Mozilo made more than $270 million in profits selling stocks and options from 2004 to the beginning of 2007. When the bottom began falling out of the subprime market, many banks and mortgage companies went under, and major Wall Street firms took huge loses. They include Lehman Brothers (which underwrote $51.8 billion in securities backed by subprime loans in 2006 alone), Morgan Stanley, Barclays, Merrill Lynch, Goldman Sachs, Deutsche Bank, Credit Suisse, RBS, Citigroup, JP Morgan and Bear Stearns. These investment banks are now accusing the lenders and mortgage brokers of shoddy business practices, but the Wall Street institutions obviously failed to do their own due diligence about the risky loans they were investing in. These proposals may seem like common sense solutions, but they are already under attack by financial services industry lobbyists. Indeed, under pressure from the lobby, the House already gutted some of the better parts of the Frank bill. For example, the Mortgage Bankers Association and the American Banking Association lobbyists persuaded legislators to allow lenders to continue the insidious practice of paying an increased fee to brokers for steering borrowers into higher cost sub-prime mortgages. It also bars borrowers whose predatory loans have been sold on Wall Street from suing investors for relief until the homeowners are facing foreclosure. In effect, it forces borrowers into foreclosure as a condition for asserting their rights. Wall Street and the big players in the mortgage market won’t be held accountable for buying abusive loans. Sloan also shed light on the sub-prime mess, observing that a 2006 issue of mortgage securities by Goldman Sachs was comprised of two-thirds “second-mortgage loans that were individually toxic waste.” This malodorous package was rated AAA by Moody”s and Standard & Poor”s and he continues: “Goldman, being Goldman, figured out early in the game that these markets were heading south and made a fortune betting against them. However, also being Goldman, the firm didn’t pass on that insight on to buyers of the securities it underwrote.” In San Diego, new construction has saturated the market, adding to the problems caused by the mortgage meltdown……
[1]
http://www.eagletribune.com/punews/local_story_085055418.html
[2]
http://news.yahoo.com/s/nm/20080325/us_nm/usa_housing_vacant_dc_3
[3]
http://bonddad.blogspot.com/2008/03/housing-nowhere-near-bottom.html
[4]
http://www.huffingtonpost.com/peter-dreier/the-mortgage-mess-and-the_b_93289.html
[5]
http://jesus-maria.cat/BLOCS/zoom1/2008/03/25/a-guide-to-buying-a-property-in-croatia/
[6]
http://www.reason.com/blog/show/125651.html
[7]
http://www.marketoracle.co.uk/Article4109.html
[8]
http://realestate.msn.com/Selling/Article2.aspx?cp-documentid=6527928>1=35000
