On Christmas Eve one would think you could have a nice evening with your family. Little did I know what Timmy Geithner had up his sleeve:
The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.
I see. But I thought housing was getting better? That's what I heard on CNBS Tuesday when existing home sales came in "above expectations."
But then Wednesday came around and, well, new homes? They're just not selling.
Purchases dropped 11 percent to an annual pace of 355,000, lower than the lowest estimate of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. The median sales price decreased 1.9 percent from November 2008.
Wait a second. How come the disparity?
Two reasons, really. The first, which the pumpers cite, is that "the tax credit was maybe going to expire." Uh huh.
No, folks, that's not the reason. The reason sales fell is that they're still falling everywhere. What's happening in the "existing home" sales numbers is that foreclosure sharks are taking a bite here and there, in many cases generating double counts in the "existing home sale" category, never mind the alleged data source in the first place. But even the NAR acknowledges that 33% of existing home sales were foreclosures, not actual organic "meeting of the minds" transactions. Take those out and existing home sales didn't rise 7.4%, they instead did their best imitation of a cliff-dive, with organic sales being a mere 4.38 million units (annualized), which is a mid-to-late 1990s print (and then again around the 1978 time frame).
The Obama administration is “beginning to realize it’s not getting better and it’s not likely to get better” soon in the housing market, said Julian Mann, who helps oversee $5.5 billion in bonds as a vice president at First Pacific Advisors LLC in Los Angeles. “They don’t want the foreclosures now, so they’re saying, we’ll pay whatever it takes to continue to kick the can down the road.”
Mark Hanson has been on this since the beginning: if you haven't read his stuff, here's a nice treatise of why we are nowhere near recovery in the housing market. Read it and weep - Timmy has.
By the way, if you're wondering what sort of trash Fannie (FNM) and Freddie (FRE) are holding, here's what Mark says about their "underwriting quality" during the boom years:
Many lenders, especially the big banks, had in-house DU and LP underwriting ‘trainers’ that would go around to the various mortgage branches and teach underwriters how to ‘trip’ the systems in order to achieve automated loan approvals when a declination was certain, or simply get fewer approval conditions on a loan that was borderline. Getting a loan approval out of DU/LP on a borrower with a 100% DTI — with limited documentation required on the automated findings — was not uncommon.
Got that? A DTI - that is, debt-to-income - of one hundred percent - was quite possible, along with limited documentation as well.
Now let's remember that most people turn over their home about every seven years (that's the average "holding time"), so an awful lot of Fannie and Freddie's paper - quite possibly as much as half - is contaminated.
Still feeling good about a housing recovery?
If you're wondering how bad this is in the so-called "prime" loans the Mortgage Bankers Association lays it all out:
6.84% of prime loans are now delinquent (at least one payment behind but NOT in foreclosure) and 3.20% are in foreclosure. This means that almost 1 in 10 PRIME LOANS are either late or in foreclosure.
FHA loans are running close to 20% between delinquent and foreclosure-in-process. That's one in FIVE.
And of subprime loans, 41% are either delinquent or in foreclosure. Forty one percent.
A mortgage that is at least two payments late almost never "cures" - that is, once you miss a second payment you're virtually assured of an eventual foreclosure. (Some one-payment misses are legitimate errors or very temporary cash-flow disruptions.)
So let's ask a few questions here:
- What's the bond market going to think about a literal $5 trillion guarantee (for three years anyway) on MBS? Might some people have known about this in advance, with that being the reason for the bleed in the long end of the bond curve this last week or so? One wonders - of course nobody would ever trade on inside information, right?
- Why wait until the market closed on Christmas Eve for this? Oh, that's to stop a sell-off in bonds, right? Yeah, we're playing "American Idol is on, and you're too stupid to remember this for three days." Got it. We'll see how that works out.
Oh, and if that's not enough to make you vomit, get a load of this:
The government announced Thursday that it had approved Wall Street-style, multimillion-dollar compensation packages for top executives at Fannie Mae and Freddie Mac, the two mortgage companies that have become little more than arms of the federal government.
The two top executives at the companies, which have received $121 billion in federal aid since they were seized last year, could be paid up to $6 million each for their services this year. In total, the top 12 executives at the two firms are in line to receive up to $42 million in 2009 alone.
Cost the taxpayer an unlimited amount due to shoddy underwriting and lax (or absent) risk controls and not only do you get bailed out, you also get paid $6 million a year.
One final question: Does this force consolidation of Fannie and Freddie onto The Government's balance sheet? I'd think so - what say you CBO?