Bankrupting the Common People

Foreclosures: There’s A World of Pain Ahead

April 18, 2010

Mike Whitney - The brief period of stabilization in housing appears to be over and the next leg-down has begun. Mortgage rates are edging higher, foreclosures are on the rise, and the government programs that supported the sector are being phased out. The uptick in bank-owned properties (REO) is adding to surplus inventory and pushing down prices ....

The Obama administration’s Home Affordable Modification Program (HAMP) has largely been a bust. Of the 3 to 4 million potential modifications, only 170,000 homeowners have successfully converted into a new mortgage. Under the new “principal reduction” plan, borrowers will be able to refinance into a FHA loan if lenders agree to slash the face-value of the mortgage. This puts the government on the hook if the homeowner defaults, which will lead to heftier losses for Uncle Sam.

One of the main sticking points with the new program has been second liens, which are the home equity loans that were made using the mortgage as collateral. Falling home prices have made these loans essentially worthless, but the banks have resisted writing them off altogether because hundreds of billions of dollars are at stake.

Even so, the four biggest banks have signed on to the new program hoping to stem the surge in foreclosures. Here’s an excerpt from an article on Housingwire that shows how desperate the banks are to stop the bleeding:

“Two major banks are expecting major increases in foreclosures by the end of 2010.

“According to the Irvine Housing blog, Bank of America, which currently forecloses on 7,500 homes every month will see that number rise to 45,000 by December 2010…..

“JPMorgan Chase is forecasting bigger foreclosure numbers in the coming months. According to a presentation at the end of February, JPMorgan expects the amount of real estate owned (REO) properties in its portfolio to reach between 33,000 to 45,000 in Q410. By comparison, in Q409, REO inventories were at 23,100.”

Bank of America’s 6X increase in projected foreclosures is a real eye-popper. It suggests that housing prices (particularly in California) have quite a bit further to tumble. This will effect everything from private consumption to state revenues. It’s a disaster.

Worth noting is that subprime defaults are largely over and that the new wave of foreclosures is made up of option ARMs, primes and Alt As. Many of these are high-income individuals who are using “strategic default” as a way to cut their losses and walk away from what has turned out to be a bad business deal. In fact, the data show that well-heeled homeowners are almost twice as likely to default than middle or low income people. So much for moral hazard.

Obama’s revised HAMP program could keep as many as one million homeowners out of foreclosure, but, even so, it’s just a drop in the bucket. Foreclosures and short sales will soar into 2011 no matter what the government does ...

Whoa, eight million homeowners are behind on their payments! And, that’s not all; mortgage applications dropped 9.6 per cent last week while the Refinance Index (refis) fell 9 per cent in the same period. So mortgage apps are down even though the First-time Homebuyer Tax Credit is still in effect (it ends in two weeks) and, even though this is the “peak season” for home sales.

So, why the sudden spike in foreclosures a full four years into the housing crash?

Because the banks have been withholding supply to keep prices artificially high. There may have been an understanding between the banks and the Fed (a quid pro quo?) to keep inventory low so it looked like Bernanke’s $1.25 trillion Quantitative Easing (QE) program was actually stabilizing the market.

But now that the banks are stuffed with reserves, there’s no need to continue the charade. So the dumping of backlog homes has begun. That will cause inventories to rise and prices to fall. More homeowners will slip into negative equity, which will lead to even more foreclosures.

It’s a vicious circle. If the coming wave of foreclosures is anything close to Bank of America’s projections, there’s a world of pain ahead.

Santelli: $4 Gas, $150 Oil Coming This Summer

April 5, 2010

NewsBusters - With summer driving season upon us, it's important to note that there's a traditional jump in gas prices. But will this seasonal adjustment benefit commodities, specifically oil and make the price of gasoline even higher? That could happen if those forms of energy lure investment from what seems to be an over-valued equities market, brought on by what some claim is cheap money.

On her April 5 program, "Closing Bell" host Maria Bartiromo asked CNBC's CME Group floor reporter Rick Santelli if a move higher in commodities was due to inflation. However, according to Santelli, it's not inflation but a move by investors out of a potentially over-valued equities market that will cause a rise in commodities.

"Well, you know, I don't like to link the two together," Santelli said. "I mean, many times you know, it is core [minus] food and energy. So I think throw all that away. I think the better question is, is that when people are afraid to put their money to work in treasuries, because rates may be going higher, maybe afraid that we are a little long in the tooth in the sugar-buzz rally of equities -- boy, commodities is the place to be. Most of the good dollar trades probably already out there."

And with this flight from equities to commodities, Santelli explained it could and will cause an upward adjustment in energy prices.

"We have the cyclical side -- we're going to have $4 gas this summer probably anyway," Santelli explained. "It's a great trade. Maria. You know, we've been to $150 before and I don't see why it couldn't happen again."

"Closing Bell" co-host Scott Wapner agreed with Santelli and explained it won't just hurt the consumer, but it would have a ripple effect across the economy into corporate profits. He explained that Alcoa (NYSE:AA), a commodity stock that one might think would benefit by this shift in investing behavior would benefit, actually would be hurt by higher energy costs.

"You know Rick, you look at what's happening with commodity prices today -- and Maria was talking about how energy stocks as one of the leadership groups -- if you have a continued rise in, say, the price of crude oil, the impact is not only on the consumer at the pump with rising gas prices, but certainly the crimp on corporate profits, because margins get squeezed because of rising input costs. For example, Alcoa today got downgraded because of the issue of maybe having a disappointing first quarter even though commodity prices like aluminum have been higher and energy costs are higher as well, so it becomes more costly to produce some of these products. So, it could have a real impact on corporate profits."

Bi-partisan Effort to Impose Additional Gas Taxes on Strapped Americans

April 16, 2010

Infowars.com - Get ready to pay even more for gas. If Republican Sen. Lindsey Graham, Democrat Sen. John Kerry, Independent Sen. Joe Lieberman, and “moderate” Republicans get their way, an additional 15 cents per gallon will be added to the gas tax.

Market analysts predict the price of oil will continue to rise for the rest of the month.

“U.S. stockpiles of crude oil fell for the first time in 11 weeks in the week ending April 9, the Energy Department reported April 14,” Newsweek reports today.

In the video below, Alex Jones explains on Russia Today how transnational oil corporations have reduced refinery production as an excuse to jack up gas prices.

Graham, Kerry, Lieberman and the Republicans are attempting to sell the gas tax increase to Congress as a climate bill compromise.

“The Senate climate bill’s sponsors also appear to want the revenue raised from the tax to fund a variety of programs that would reduce industrial emissions, including helping manufacturers reduce energy use or boost wind and solar power installations by electric utilities,” Newsweek reports.

Earlier this week it was reported that wind turbines that are considered part of Obama’s “renewable-energy initiative” will be manufactured in China. The initiative is funded in part by Obama’s $787 billion economic stimulus plan.

Congress is exploiting the widely debunked climate fraud to increases taxes on Americans.

In March, analysts predicted $3.00 per gallon gas prices in the weeks ahead.

“Seasonal influences are strong this time of year and account for much of the expected increase that many analysts say will push gasoline to a nationwide average of at least $3 per gallon this spring,” the Associated Press reported on March 2.

“The higher prices come at a time when most Americans’ incomes are stagnant. Incomes edged up 0.1 percent in January, below analysts’ estimates, according to the Commerce Department,” AP added.

Additional financial burdens on the American public obviously do not concern Graham, Kerry, Lieberman and the Republicans. Congress is determined to push through punitive taxation schemes under the guise of phony climate change.