Aug 16. FHA policies prolong housing problems

Aug 16.  From BBG: “The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments are listed at $820,000 to $3 million.” Is this the proper use of federal spending?!?!
–The mortgage market is now totally dependent on the federal govt thru FHA, (and FNM and FRE).  According to WSJ, the FHA backs 30% of loans.  Instead of using policy to try to gently guide housing prices down to their lower price-clearing level, the gov’t is pursuing the same strategy that got us into problems in the first place: low downpayments combined with low credit scores.  Except that instead of banks and financial company shareholders bearing the risk, it is now overtly the taxpayer.  I don’t watch longer end curve trades closely, but I saw a piece by Morg St that said 10/30 treasury spread is edging to new highs.  At first I thought it was because the new QE effort is targeted at 2-10 year treasuries, but now I am more inclined to think this is the first crack in the dam.  Perhaps longer dated treasury buyers are realizing that the US Treasury is diluting itself by taking on too many bad mortgages, and they are starting to demand slightly higher risk premiums.  Krugman thinks the US can add to stimulus measures at will because of extraordinarily low rates, as if a day of (higher rate) reckoning will never arrive.  As we know, when unsustainable situations end, they unravel quickly. 
 
–A couple of other notes:  I saw a story on HuffPost noting dead fish have been washing ashore all along the eastern seaboard.  Gulf oil spill related?

–The stronger dollar seems to be weighing heavily on tech stocks.  Also, a lot of technical blogs note we have had a Hindenburg Omen which indicates high probability of large stock declines.

http://www.dailyfinance.com/story/investing/hindenburg-omen-stock-crash-follow/19593800/ 
 
–From Prudent Bear citing BBG: August 10 – Bloomberg (Kathleen M. Howley):  “Harvey Collier, a mortgage broker in Fort Lauderdale, Florida, says he gets as many as 10 calls a month from people planning to default on their loans. The twist: They first want financing to buy another home.  Real estate professionals call it ‘buy and bail,’ acquiring a new house before the buyer’s credit rating is ruined by walking away from the old one because it’s ‘underwater,’ or worth less than the mortgage. It’s an attempt to escape payments on a home whose value may never recover while securing a new property, often at a lower price with a more affordable loan.  The practice, which constitutes fraud if borrowers lie on loan applications, is continuing even after Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, beefed up standards to prevent it…”

–Lastly, the Chicago Tribune notes that many rooftop stands surrounding Wrigley Field are having financial trouble because of poor attendance. This is partly due to the Cubs’ poor record, but also is a reflection of property prices and “investments” that were made at the height of the mania, when people thought it could never end.

Posted on August 15, 2010 at 2:07 pm by alexmanzara · Permalink
In: Eurodollar Options

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