Tony Rand

AIG Watch: The Taxpayer Is Being Fleeced Twice

Great article, except for the watershed comment. Outside of that the biggest issue still left on the table is reinsurance issued by AIG (because those mortgages were guaranteed by FNMA and FHLMC a.k.a. John Q. Public). What really bothers me is that "of the people, by the people and for the people", has been lost in translation. This is truly a sad state of affairs for our country. The best information I got from this post is that "too big to fail" = "too big to win" and as a taxpayer, no one offered me a contract to sign (or not sign) that would guarantee non-government businesses would be guaranteed "not to fail".

Where Is That Mythical Housing Bottom?

Great commentary and questions. After spending the last 23 years working in the housing and banking industries, I can think of three primary areas that need to see improvement before we begin to see the housing bottom. I'm sure there are more areas that could be applied, but these three stand out the most. First, there is the affordability index.

As an example, near the height of the housing bubble, home prices in Orange County, California were so high that less than 10% of households had a median income that would qualify them to achieve the dream of home ownership. Because of risk ignorance, easy credit was made available to people who did not truly qualify.

Second is consumer confidence. Third, as already mentioned, is unemployment. All three of these areas must first see improvement and then stability before we see the housing bottom.

As ArkansasAngie mentioned above, there are widespread fluctuations throughout the country where some areas are greatly impacted. Many areas, which can in part claim credit for instituting anti-predatory lending laws, have been protected from artificially inflated home prices and excessive consumer spending by using home equity like it had an ATM card attached to it.

Because the housing boom was artificially sustained outside of normal cyclical channels, the hangover from the party will last longer - and it will also be more difficult to hold back on the reigns as we slide further down the correction side of the hill.

'The Change We Need' Is in Economic Direction

First things, first. Is it just me, or are there a lot of negative ratings assigned to the comments posted by users? It has always been my understanding that correct and truthful comments should receive positive ratings and incorrect or false comments, negative ones.

Interesting how you put all of this together, Steve. Yes, it is odd that the United States, having moved from capitalism and toward socialism, suddenly seems to be lowering its self-installed blinders - only to be surprised to catch themselves viewing the ground from their midway dive off one of the worst economic cliffs seen on the globe. This is an act of the People and we should take responsibility for the act.

For some reason WE the People think that we can blame our elected Government for our problems today. Our elected officials and all of their subsequent act(s) are only as good as our voting power can afford us. Well, I'm sorry to say that we, the People, got cheep and greedy. Agreed - All of the options laid out thus far seem to be further blinding the People, all of whom are living with the worst of all fears - the fear that they have no control over their destiny - including that they no longer seem to understand their own comprehension of "destiny".

If our nation is going to survive, we need to rethink how we are to proceed forward - ignoring all that has taken place in the past other than to make a checklist of what not to do in the future. We need to focus on promoting infrastructure and education, with education being the most important. Math, science and ingenuity driven from critical thinking will drive the future of this planet. If America does not get on board, we'll be left in the dust (literally). Although our new President hasn't said so, I believe he understands the fundamentals needed to help lead us, all Americans, back up the global ladder.

We do need a new economic and financial direction. I don't know if I would equate it to a "religion", but I do understand where you went with this. Religious faith is very strong and requires complete trust in the beliefs drawn from it...a blind faith so to speak. I have both my sight and my faith. What about the rest of you, America?

Bernanke Speaks Out on the Great Recession

Thank you, Steve. Yes, it is odd that the media coverage of Bernanke's speak were barely covered. I do truly wish that we could stop trying to find 1) blame, and 2) a cure. All of the options laid out thus far are blindsiding the American people and causing them to lose focus on the big picture.

America was once a grand nation, full of power, strength, justice and leadership; leadership in both business and politics. Today, after spending the last 10-years (or so) ignoring that the world wants to be us, we've failed to track and monitor that the world is gaining on us at an incredible rate of speed. Globalization is taking place and we're losing our standing in the world.

If our nation is going to survive, we need to rethink how we are to proceed forward - ignoring all that has taken place in the past other than to make a checklist of what not to do. We need to focus on promoting infrastructure and education, with education being the most important. Math, science and ingenuity driven from critical thinking will drive the future of this planet. If America does not get on board, we'll be left in the dust (literally).

S&P Set To Launch New Indexes of Condo Prices

There is nothing wrong with more data - provided it is relevant and thorough. The new indices are incomplete without additional relevant markets - the five metros chosen will not provide thorough data.

Secretary Paulson Does the Right Thing, Again

Right or wrong, Paulson mislead the country and is himself adding to the growing problem of fiscal irresponsibility. One purpose TARP had was to allow for modifications of legitimate mortgages. ABS and other SIV instruments contain prohibitive restrictions that prevent modifications from taking place - at least to the extent needed to prevent unnecessary foreclosures. Taking ownership of those assets would have removed the restrictions. Shoving $125 billion down the throat of BofA (and eight other large financial institutions) is not going to resolve the foreclosure or credit crises.

Common Sense: My Solution to the Mortgage Crisis

Thank you, Jim, for bringing this absurd notion to light. The solution presented is concentrated on personal consumption without regard to the negative liquidity (or wealth) of consumers. Since the strongest growing points of personal consumer growth have stemmed from the housing market, the erosion of personal liquidity based on disappearing household equity can only show the reaper's market downside at this time in our current marketplace. Now there's some common sense. What do you think, America?

Not only does this proposal lack common sense, it is far from making any sense at all. Such a proposal would send the availability of credit back to the 1960's; if not the pre-depressionary years of the 1920's. Additionally, this proposal would end up costing tax payers far more than the $85 billion dollars we've already invested in, and thus acquired, in AIG through our Treasury Department. It might even cost more than the most current version of the bailout proposed to the legislature. [Check the House Financial Services website for details.]

I have several responses for you, Jim. Each one is unlike the other as they are all predicated on your state of mind when you wrote this posting.

If you were trying to boil the blood of the financial and economic professionals throughout our country, then kudos, you succeeded.

If you were trying to substantiate the beginning of your title to this posting ("Common Sense"), I truly wish that you were sharing whatever it was you were smoking at the time. With the exception of, "Nothing can proceed until confidence in the credit market is restored, and that can be done only one properly underwritten loan at a time", this posting fully lacks any common sense whatsoever.

If you were intentionally throwing a one sided proposal out in the open so that people would know, after fully analysing it, that this would be the worst of all possible solutions, then I thank you.

I agree that underwriting standards began to lose their own common sense beginning primarily in the years 1996 through 1998. These were the last years that the residential mortgage lending market had some semblance of being both prudent and stable. Maintaining the underwriting standards that were present in circa 1986-1995 would certainly have helped to avoid where we're at today. However, given the current national dilemma, nothing seems to make any sense at all - forget about "Common Sense".

The entire nation is dealing with unprecedented times. No one knows how to predict the best course of action, let alone how much intervention is required. Look at the statements of Ben Bernanke and Hank Paulson over the last 12- to 14-months. Either one of them could be accused of lying to us. My opinion is that neither one of them wanted to speak on the possibility of gloom and doom, only to attempt to keep the markets calm.

At the end of the day, greed caused this mess. Beginning with the consumer and ending with the investor - including every party involved along the way. Could this have been prevented? Yes. Where would we be today if he had? No one can say. What is most important now is for the Federal Reserve Board and Treasury Department to allow the natural course of correction to take place without excessive interference. Too little action and there will be a run on the financial markets. Too much action and it will be another decade before we see recovery.

Why I'm Still Out of Mastercard and Visa

All in, Americans are carrying in excess of $11 trillion in debt (secured and unsecured). If more than $6 trillion is secured, look for the more than $5 trillion in unsecured debt to be annihilated when the economy continues to slide over the edge of the cliff.

Is the U.S. Banking System Safe?

Great job - sound advise - outstanding analytics. There is no way that the housing market can begin to correct until we hit bottom. We can't hit the bottom until the affordability index corrects, consumer and investor confidence stabilizes, and the existing bad loans improve in performance - which is not likely unless more aggressive attempts are made toward modifications.

Look for hedge funds that are investing in non-performing mortgage paper to continue their large profit margins so long as they concentrate on keeping consumers in their homes. Increased foreclosures will only impede recovery if inventories continue to increase.

What I don't understand is that banks and servicers should just take this position on their own. It doesn't make any sense to see a non-performing pool of mortgages sell at 50 cents on the dollar when they can write off 30 cents, modify the asset and improve their balance sheets. Since fear follows the repercussions of greed, I do understand why they've lost all common sense at this juncture.

Housing Bottom and Homebuilders: No Sign of Improvement

J.C. is correct. We're not yet out of the woods and these builders must be desperate or making an unsafe gamble. The only way to really answer this is to look at their land inventory - are they stuck with too much and forced to develop it and move it because it is costing more to have it just sit there?

NAR on "Temporary" Housing Problems

Once again, Barry, you have brought a smile to my face on this wonderful and beautiful Sunday evening in Southern Orange County (California). As with DuffBeer, I have also been employed in the housing market for 22 years. Not in real estate sales, but in mortgage banking (specifically in compliance, credit, due diligence, loss mitigation and the secondary market). I am disappointed with why this market is in the mess it's in versus just being in a normal market cycle. The unfortunate "why" is greed, pure and simple.

Back in 1998, the last cycle that was due (without being negatively influenced by the market moves we've seen since 2001), was also influenced by liquidity issues (in ours and other markets - problems with Russian and other currencies - erratic movements in the mortgage backed securities markets - erratic downward movement of the fed funds rate - erratic upward movement of the 10-Year Treasury - etc.), caused several corrections in the market even though they were temporary.

Because the fed overreacted and the Treasury market was up and down (daily) with erratic emotional trading, the housing recession was postponed until sometime between the second half of 2000 and the first half of 2002. In fact, in the beginning of the second quarter of 2001, we started to see an impending recession of all markets, especially in the housing sector. Unfortunately, a multitude of events took place from the fed (then still under Greenspan) which followed the 2000 dot.com meltdown and/that precipitated a majority of the problems we're seeing today.

The markets again attempted to correct themselves in 2003, all to no avail. Wall Street was still receiving a huge demand for bonds; specifically adjustable rate mortgage backed securities. This demand, which started out on a USA economic level slowly bled into a global demand. Part of this was from the slow flattening of the global economic markets (including employment).

The demand for bonds was so incredibly strong, that anything and everything was being purchased (as for the mortgages needed to fill those fixed income securities). Because the housing market was not able to meet the full demand of the institutional investors in play, the loosening of credit standards that began in 2001 (to fill those demands), carried forward into 2003 with an even greater force than ever before in the history of the housing market.

All of this was driven, of course, by greed. Wall Street was making a TON of money, as were the rating agencies and GSE's that were backing, guaranteeing and/or certifying the liquidity of the bonds being issued. Being the terrible thing that it is (I'm speaking of greed), the market continued to fill the demand with further/additional loosening of credit standards to the point that mortgage loans soon became known as easy to acquire or "easy money". Fraud then spilled into the market from the greed that was driven from the secondary market - mortgage market (Wall Street driven and controlled). Fraud and greed, when combined are both a toxic and terminal combination...as we know they are to be today.

The models that I've been running show that the housing market will not flatten (a.k.a. bottom out) until some time in 2009. The commentary and supporting graphics you've supplied show that this will not happen until 2010. I will in no way shape or form (without proper supporting evidence) disagree or challenge the data supplied in this article; because at the end of the day, we've never seen this type of market before and we may never again see it -- this of course causes other/additional problems.

What I'm looking for, as an employee of the market, as well as being a United States Citizen trying to survive in this market, is consistency and honor. Both of these traits used to exist in our market, but they've been missing for some time now. Because of this, I've had to find other ways to feed my family and provide assistance to those that cannot afford to feed their families.

The saddest part of all of this comes from the delayed economic number that we get from all of the agencies which do not fully disclose the severity of this (or any other) problem that is so reliant upon the accuracy of that data.

In closing, I again thank you for calling a spade a spade...and for calling onto the carpet, the NAR and its continued false claims that "everything is okay...all is normal...all will prevail".

Most certainly, the biggest idiots are those that actually believe those statements (my apologies to all of the NAR and Realtor based members that "want" to believe these reports.

Best regards and keep the "truth" coming!

T. Rand

Countrywide CEO Gets Lucky Grantitis

Didn't Angelo once say something about it being hard to raise a family on a salary of $350,000 a year??? I'm sure there are a lot of us that would like to see just how difficult it really is.

Survey: Downey Financial Foreclosures Are Skyrocketing

If Downey fails...it will be a failure of the federal regulators.

Getting the Real Estate Crisis Right

Maybe you should call me Chicken Little. Example: The affordability index in 27 major metropolitan counties shows that borrowers left without the ability to lie about their income/assets nor the ability to accept a high risk negative amortizing mortgage cannot afford to own residential real estate. Realistically, all home price gains from 2003 will most likely be wiped out. So in many areas we will see home value declines as high as 50% to 60%. Most areas will be in the 20% to 30% range. Any area in which normal home price appreciation has been realized from 2000 will maintain a great degree of normalcy with a 1% to 7% reduction in values. This is my fifth market cycle, but for myself (and everyone else who has been in this business a long time), the characteristics of this perfect storm will bring more damage than ever expected...compare this fiasco to the S&L scandals of the 1980's and then add appropriate inflation factors for your region. At the end of the day, the recent inverted Treasury yield curve guarantees our recession. How the legislature, GSE's, HUD and all of the mortgage servicing entities handle recasting adjustable rate mortgages and loss mitigation of repayment impairment will only soften the overall blow to the existing market...not eliminate it altogether.

Countrywide Financial: Who Didn't See It Coming?

The statement "nobody saw this coming", is an absurd and obtuse claim. Everyone new this was coming, especially if they had more than five years experience/exposure to the market. All of this was caused by greed, pure and simple. We should have had a normal market cycle in or around 2003; we had the first glimpse that it was coming in 2001. However, Wall Street continued to feed the demand for mortgage backed securities.

The demand continued past the time of prudence and senility began to set into the market. Had Wall Street not loosened loan quality standards to maintain ample supply of mortgage backed securities, the demand for MBS's would have diminished and those investment dollars would have gone elsewhere -- and it is because of these efforts that we are in this so called perfect storm, caused by an artificially grown and sustained housing market.

I agree that Mozilo knows what he's doing and he deserves all of the respect of the industry. Those who don't like him and the value that he has brought to his shareholders are either jealous or just don't know him well enough to make a qualified judgment.

The current market crisis (that should have only been a cycle) is far from over. The tightening of the purse strings on lending criteria is a long overdue correction to something that should have never happened to begin with. Remove greed from the equation and you will remove all of the entities and individuals who contributed to this perfect storm.