Housing and Banking Set to Lead Another Economic Wave Lower

I begin the week by summarizing comments on the Housing and Banking Sectors by Elizabeth Warren, the Top Cop of the Congressional Oversight Panel. And Bank Failure Friday resumes.

It’s time for Congress, Geithner, Bernanke and Bair to heed the warnings from the Congressional Oversight Panel, as Elizabeth Warren sees the risks I have been talking about in Housing and Banking since April 2006.

Warren says the Big Banks always get what they want. They take the money and write the rules. They report record profits and pay themselves record bonuses.

She agrees with me that the housing market is getting worse, not better, with foreclosures up 5% in the third quarter. Foreclosures are outpacing mortgage modifications two to one.

Look for ten to twelve million foreclosures by the time “The Great Credit Crunch” ends. Foreclosures are mushrooming out to prime borrowers and will continue as unemployment rises. Creditors and investors need to take a haircut to ease the pain on Main Street.

On banking, Warren says that the Stress Tests need to be re-done, as economic conditions have blown through the worst case of the Stress Tests and tests need to be repeated and extended through 2012.

On TARP, Warren indicates that there is zero chance that we will find out where the money has gone. TARP was supposed to price and remove toxic assets, it did not. Then TARP was supposed to increase small business lending, it has not.

Wall Street thinks that we have returned to business as usual, while Main Street is struggling with job losses, tighter credit, foreclosures, all leading to a lower standard of living.

After a week off, Bank Failure Friday returned with the 99^th failure of the year.

The FDIC closed San Joaquin Bank (SJQU), a small community bank in Bakersfield California. This $775 million bank had huge overexposer to C&D and CRE loans with risk exposures of 320% and 1002% versus the ignored 2006 regulatory guideline of 100% and 300%. The FDIC and other banking regulators were clearly asleep at the switch to allow these failures to occur.

This bank was on the ValuEngine List of Problem Banks and cost the Deposit Insurance Fund $103 billion, which by my back of the envelope estimate puts the fund $5 billion in arrears. Remember that the FDIC does not keep track of the Deposit Insurance Fund on a daily basis – What a sad joke.

This is the week for earnings from several community and regional banks. Here are a few rated "sell" according to ValuEngine.

Zions Bancorp (ZION) is projected to decline 33.9% over the next twelve months. They report today.

Comerica Inc (CMA) reports on Tuesday and is projected to decline 26% over the next twelve months.

M&T Bank (MTB) reports on Tuesday and is projected to decline 17.3% over the next twelve months.

Astoria Financial (AF) reports on Wednesday and should decline 27.1% over the next twelve months.

Wells Fargo (WFC), one of the “too big to fail” top four, also reports on Wednesday and is projected to decline 14.9% over the next twelve months.

City National Corp (CYN) reports on Thursday and should decline 18.3% over the next twelve months.

Each of these financials has a short position in the ValuTrader Model Portfolio, which is a subscription product offered at ValuEngine.com.

Disclosure: Hold No Positions in the Stocks I Cover.

Comments

[Lucio Petro...:]

Thank you for your thoughts above. What concerns me the most is that we seem to have three US economies occurring today - everyone is one a different page. The first is the financial institutions and banks saying we are back to normal - until the home mortgage crisis becomes very prominent and raises its head again. The second is wall street. Companies are being rewarded for short term cost reductions and efficiencies. What will they be rewarded for next quarter when revenues will decline since people aren't spending money. Finally, we have the real world where unemployment is probably at around 15%+ (when adjusted for people given up looking for work / people who had to settle for part time work). People with no work and security spells no spending and more home mortgage issues.

The world economic model currently runs on the US being the number one importer and consumer of goods from around the world. That model was built on debt. Unless we change to a new model where the US becomes a major exporter of goods and China becomes the new number one importer and consumer of goods, we need to all get on the same page and work together. Or the second wave of this crisis will crash down on us - only this time we may not be able to print more money. The machines only have so much ink.

Oct 19 11:04 AM

[Barbara Ann...:]

The Brennan Center for Justice October 2009 report entitled,
"Foreclosures: A Crisis in Legal Representation" points out things some people never consider: When a person lacks knowledge, particularly of Consumer Law, he or she is not likely to recognize an actionable claim concerning a mortgage debt or any other type of debt which requires a judicial ruling. Owing a debt does not justify denial of Due Process, nor erroneous or fraudulent pleadings filed in courtrooms, nor any other Unconstitutional violation of people. Lack of financial means to pay for a lawyer obstructs access to justice; and too often judges are biased against the financially unfortunate, and tend to rule favorably
for the rich and powerful. Or, a person can run out of money to pay
his / her lawyer before the controversy becomes resolved. Moreover, incredibly, some people actually think that because a person does not have a lawyer, that person's claims have no merit. And sadly, some people fail to regard the reality that Statute of Limitation is the reason why a person who has yet to obtain a lawyer is forced to commence his / her litigation in 'proper person'.

In a few States such as where I reside Louisiana, there is such a
thing as "Cognovit Clause" which most States have banned because it precludes people from timely raising objections to improper foreclosures. Sometimes foreclosure lawyers here intentionally file falsified Civil and Bankruptcy foreclosure pleadings in courts; and in some instances, through use of a false mortgage holder's name, the collection lawyer actually is the disguised foreclosure plaintiff who wounds up with ownership of the property. (I have prima facie proof!) However, mortgage loan debt is NOT the only type of debts whereby the odds are stacked against people.

The appalling and incredible reality is that the odds are against
people who owe any kind of debt (sometimes to the degree of harm and extortions of horrific proportions). Some borrowers who become delinquent on payments are gold mines for unscrupulous law firms! Too often rather than the agenda being repayment from the borrower, the goal is to rake in mega bucks from corporations that pay those legal tabs. And worse, if a debtor protests unfair collection tactics, blacklisting from employment and incredible invasion of privacy, are among the consequences.

A paradigm of appalling outcomes from facing formidable lender
opponents is exemplified by Wells Fargo (WF). Too often a mortgage loan involving Wells Fargo can mean. . .*SEE ARTICLE @ newsblaze.com/story/20...
**Also see:

"OPEN LETTER TO PRESIDENT OBAMA on Foreclosure Crisis"
www.pr-inside.com/open...

"Foreclosure Crisis, Lender Deceptions, Biased Courtrooms, . . ."
www.oprah.com/communit...

www.lawgrace.org/2008/.../

"Dubious Fees Hit Borrowers in Foreclosures"
www.nytimes.com/2007/1...

"DEBTOR'S HELL", a 4-part investigation by the Boston Globe
www.boston.com/news/sp.../

Barbara Ann Jackson
Law & Grace, Inc

Oct 19 01:21 PM

[Chaser12:]

Short financials at your peril.

Oct 19 06:39 PM

[Chaser12:]

Short the financial sector at your peril.

Oct 19 06:40 PM

[HardwoodFlo...:]

Well the housing numbers came out and guess what - they still suck. Know why, people cannot get financing.

Talking with a banker here is what he said:

"If s guy comes in and what's a loan and is credit worthy but not a customer of the bank we will not lend him. We will not lend him because we have no incentive to do so. We hare being asked to keep our cash ratios at peaks. So , if we loan out more "new"money we are forced to bring in more capital to offset it. Well it's harder to raise capital than it is to say no- so we just say no. The only exception to this is if they are a good customer and we have a commercial relationship with them or something other than just doing "new" business."

So wonder why housing sucks- there it is. The reason in a nut shell.

The government with all of their intervention has this country scared of it's own shadow at this time....

Oct 20 09:59 AM

[Smalltownba...:]

Hardwood Floors needs a new banker and the attorney should go fishing for clients somewhere else. As a community banker I can tell you that we have more money to lend than we have opportunities to lend it. Deposits are up and we have excess lending capacity but can't find enough good deals to make.

Regarding mortgages, the area of the bank which I happen to manage, we have no more problems today approving well qualified buyers than we did 3 years ago. The margninal credit borrower is now hard to get financing for but it should be harder than it once was. The self employed person who thinks self employment is a method of avoiding income taxes can't get a loan. Honest self employed people who report their earnings and pay their taxes are getting loans from me every day.

One group who is no longer eligible for a mortgage is the individual with no credit score. My Dad's last loan was taken out 2 years before I was born, or about 52 years ago. Today if he wanted it he would not be able to get a mortgage, at least not an agency mortgage sold into the secondary market. That is unfortunate.

Otherwise the deadbeats who never paid their bills anyway can't get loans. People who are chronic late payers can't get loans. People with prior bankruptcy and foreclosure are waiting longer and must take steps to rebuild positive credit befre becoming eligible to buy again. None of these are bad things. It is the way it should be. If I am going to loan someone money to repay over a 10-30 year term I should be able to expect them to maintain a good record for at least the last 2-3 years.

We are back to what should be considered normal. If you manage your finances in a way the deserves consideration for a loan you will get one.

Oct 20 08:57 PM