Newt Gingrich’s Long Ties to Fannie Mae and Freddie Mac

In his effort to savage Mitt Romney, Newt Gingrich has tried to make much of Romney's time at Bain Capital and Romney's job killing corporate agenda. Gingrich conveniently tries to ignore his own long involvement with Fannie Mae and Freddie Mac which have wreaked far more havoc on average Americans through their insane actions in the lead up to the housing bubble's collapse. To Newt, history is whatever is convenient at any moment in time and one sometimes has to wonder whether he's a pathological liar or simply so blinded by his ego that truth becomes whatever is expedient at the moment. The New York Times looks at the length and depth of Gingrich's involvement with the two residential mortgage giants. Here are some highlights:

Two of the sponsors for part of the Ireland trip were frequent partners of Mr. Gingrich: Freddie Mac and Fannie Mae — the government-backed housing industry giants that Mr. Gingrich has denounced as he fights to stay in contention against Mitt Romney in the Republican primaries.

Mr. Gingrich has faced many questions recently about the more than $1.6 million in consulting fees he got from Freddie Mac since leaving Congress in 1999. But part of the relationship started years earlier, as records and interviews show that Mr. Gingrich, as House leader in the 1990s, aligned himself with Freddie and Fannie on a number of key issues — defending them in Congress against political attacks, joining with them on housing projects and seeing top aides go work for them.

While Mr. Gingrich has minimized his past connections to the two closely related companies on the campaign trail, his Congressional record shows that his political and financial ties to the firms run deeper and farther back than he has acknowledged publicly and, in fact, set the stage for the lucrative consulting work that followed.

Mr. Gingrich, whose campaign declined to comment on his ties with Fannie and Freddie while in Congress, has been blistering in his recent criticism of the mortgage finance companies. He has blamed them in part for the 2008 housing collapse, said they should now be “broken up,” and in an October debate he declared that Representative Barney Frank should be “in jail” for associating with lobbyists close to Freddie.

But while in Congress, Mr. Gingrich had kind words for the companies. Announcing a housing partnership in Atlanta in 1995, for instance, he held up Fannie as “an excellent example of a former government institution fulfilling its mandate while functioning in the market economy.”

Mr. Gingrich’s help was seen as particularly crucial after the Republicans took control of the House in 1994, as Freddie and Fannie tried to turn back rising hostility from some Republicans over their mission, structure and financing. Once he became speaker in 1995, Mr. Gingrich’s support loomed large as the companies sought to shore up flagging confidence among the Republicans and bolster the case for home ownership, officials said.

In a showdown critical to the companies’ fortunes, Mr. Gingrich played an important behind-the-scenes role in helping block a proposal in 1995 that would have forced Fannie and Freddie — rather than taxpayers — to pay potentially billions of dollars in increased fees, according to interviews and press accounts at the time.

[M]onths after Mr. Gingrich left Congress, his direct involvement became clear, as his consulting company signed a $25,000-a-month contract with Freddie. In 2006, he signed a second contract with Freddie as a strategic adviser, a role he described initially as a “historian.” Mr. Romney has branded the work as “influence peddler.”

The bottom line is that Gingrich is slimy and definitely challenged when it comes to truth and veracity.

John Boehner and GOP Fight Foreclosure Relief

For almost four years now, I have said over and over again that unless and until the residential housing market is stabilized, there will be no overall recovery of the U.S. economy. The collapse of the housing market has resulted in billions of lost equity on the part of consumers, countless families losing their homes, and countless lost jobs in housing related industries. One would think that fixing the foreclosure disaster would be priority number 1 with both houses of Congress. But such is not the case. Banks and lenders were bailed out to the tune of billions of dollars yet they have not passed any benefit on to home owners. Nor has Congress demanded any real accountability. In the case of the GOP, one would even think that the Congressional Republicans want the housing market to continue to spiral downward -probably hoping for political advantage. Never mind the families and lives being destroyed and damaged. Huffington Post has a piece that looks at John Boehner's efforts in particular to fight meaningful foreclosure relief measures. Like most in the GOP, Boehner wears his religiosity on his sleeve but acts in a most un-Christian manner. Here are some highlights:
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Regina Moore has lived in her Hamilton, Ohio, home, in the heart of House Speaker John Boehner's district, for 50 years. Her husband passed away in 2005, and in 2008 she took out a new $72,000 mortgage so she could afford to pay her medical bills. She had a steady job, having worked at the Champion Printing Company in Cincinnati for more than two decades. Her monthly payments on her $86,000 home amounted to about $450.
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It was a simple mortgage for a simple home -- no exploding payments or swimming pools. But last year, at the age of 70, Regina lost her job, and her $1100 a month Social Security payment wasn't enough to make ends meet.
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While Jeff, a local housing group and a lender ultimately helped Regina modify her mortgage so she could stay in her home, many of her fellow Ohioans haven't been so fortunate. Hamilton, about 45 minutes outside of Cincinnati, has one of the highest foreclosure rates in Butler County. And Butler County has been a foreclosure hotspot for years. Along with the Cleveland and Columbus areas, Cincinnati and its surroundings have seen the predatory subprime binge come and go and now watch as the crumbling job market pushes more and more homeowners into financial ruin.
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"In the beginning, we really saw more loans that we thought had predatory features," said Sister Barbara Busch, a Catholic social justice worker who serves as Executive Director of a Cincinnati-based homeowner advocacy group called Working In Neighborhoods . . . n 2010 we saw a large number of unemployed, where the loans themselves weren't so bad, but people had just lost their jobs."
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Others who work with struggling homeowners say the same thing: The initial wave of mortgage problems was due to people unable to manage exotic or high-risk mortgages, but the current problem simply involves people losing jobs in a weak economy who can't pay their bills.
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These are homeowners who have done everything right in the sense that they were careful about the kind of mortgage they got, they didn't buy a property they couldn't afford, but now they're facing long-term unemployment."
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Over the past three years, lawmakers across Ohio have pressed for foreclosure relief, often crossing party lines to do so. But Boehner has never joined the effort. When Rep. Steve Chabot, a fellow Republican whose district borders Boehner's and shares many of its economic hardships, backed a 2008 bill to grant relief to homeowners in bankruptcy courts, Boehner refused to sign on.
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the House Speaker made the case for his opposition to foreclosure aid in a recent appearance on CBS News' Face The Nation. "Over the last couple years, Congress has really set up four programs to help with those mortgage problems," Boehner told CBS' Harry Smith. "And unfortunately, none of those have worked. And all they've really done is dragged out the length of time for the market to clear the problems."
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"If people are trapped in houses where they can't pay their mortgage but can pay something, you can prevent areas from becoming desolated by foreclosed and abandoned homes, which drive down prices for everyone," said economist Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning research group.
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And Boehner consistently votes with Wall Street on major policy issues. He voted in favor of the bank bailout in 2008, and opposed financial reform legislation in 2009 and 2010, even as he socialized with such major financiers as JPMorgan Chase CEO Jamie Dimon in an effort to raise campaign cash.
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[U]nlike other TARP programs, including Obama's HAMP initiative, the Ohio government actually requires banks to sign a legally binding contract with the state, creating clearly defined obligations: the bank gets money, but the mortgage must be modified. But the program has serious flaws. Jeff said he couldn't understand why it took seven months for his mother's paperwork to be approved. It wasn't terribly complicated, he said; either the numbers worked, or they didn't.
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Big banks, by contrast, are frequently combative throughout the entire foreclosure process. The Legal Aid Society of Southwest Ohio (LASSWO) is currently suing Bank of America on behalf of 12 families, including at least one in Boehner's district, for filching on loan modification agreements that it made during an October 2009 in-person "borrower outreach" program in Cincinnati. The Treasury Department sponsored the event as part of its HAMP program.
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Boehner rebuffed efforts to divert some of that federal funding to help borrowers in foreclosure litigation. As the vote approached, Boehner's spokesman, Michael Steel, launched a broadside against the entire effort.
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The article continues, but you get the drift. As for Bank of America, from what I have seen of the way it treats legitimately distressed homeowners, I would personally never do business with the ban again. I encourage others to likewise avoid it like the plague. Lies, incompetence and unreasonable conduct are the norm in my opinion.

Housing Market to Remain Troubled for At Least Three More Years

If this prediction by RealtyTrac, a foreclosure marketplace and tracking service, proves accurate, it could spell the doom of any re-election hopes the Liar-in-Chief may hold. I've been arguing since the summer of 2007 that unless and until the residential housing market stabilizes and begins to rebound, the overall economy will NOT get better for most Americans. Wall Street may be raking in obscene profits and the wealthy seemed about to get a tax windfall at the expense of the rest of the nation, but housing market stability and increasing home equity is what will drive an overall recovery. No one in Washington, D.C., of either party gets this simple fact and no one is holding mortgage lenders accountable for irresponsible foreclosures and foreclosure sale prices that are ridiculously low which in turn pressure neighborhood home prices to fall further. And as prices fall, more homeowners will find themselves upside down on their mortgages with less incentive to continue paying their loans. It's a domino effect that shows no sign of ending. Here are highlights from Rueters:
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The housing market will remain depressed, with record high foreclosure levels, rising mortgage rates and a glut of distressed properties dampening the market for years to come, industry experts predicted on Tuesday.
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"We don't see a full market recovery until 2014," said Rick Sharga of RealtyTrac, a foreclosure marketplace and tracking service. He said that he expected more than 3 million homeowners to receive foreclosure notices in 2010, with more than 1 million homes being seized by banks before the end of the year.
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Both of those numbers are records and expected to go even higher, as $300 billion in adjustable rate loans reset and foreclosures that had been held up by the robo-signing scandal work through the process. That should make the first quarter of 2011 even uglier than the fourth quarter of 2010, he said.
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Mortgage rates will start to rise in 2011, further dampening demand and limiting affordability, said Pete Flint, chief executive of Trulia.com, a real estate search and research website. "Nationally, prices will decline between 5 percent and 7 percent, with most of the decline occurring in the first half of next year," he said.
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Almost half -- 48 percent -- said they'd consider walking away from their homes and their mortgages if they were underwater on their loans. That's up almost 20 percent from when the same question was asked in May. "If that continues it would be an epidemic of strategic defaults," said Flint.
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Roughly 1 in 5 consumers said they expect it to be 2015 before there is a recovery in housing, according to the survey, conducted in November by Harris Interactive. Most respondents said they think recovery will come in 2012 or 2013. Would-be buyers suggested they wouldn't really get serious about purchasing a home for another two years.
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Homebuyers who are willing to take risks and buy distressed properties are likely to see discounts of around 30 percent from prices on comparable homes that are not in distress.

The Other Plot to Wreck America

Yesterday I gave a three hour seminar to a group of real estate investors, one of whom owns a commercial contracting company. The common lament? The near impossibility to get financing. This investor said that his work orders were 1/3 of what they were in the previous year, which was not a good year to start with. Meanwhile, headlines shout out how banks are giving out BILLIONS in bonuses after being bailed out with taxpayer funds. Instead of lending, these leaches are giving bonuses to themselves. It's disgusting - indeed, it's obscene - and it's killing the recovery of the real estate market, the collapse of which is what took down the economy in the first place. There is a serious need for drastic reform of the banking regulations and I strongly support Ariana Huffington's call to move deposits from greedy banks that are "too big to fail" and move them to community banks which are about the only source for business and commercial loans for small business. Here's a link to more on here "Pledge to Move Your Money Now." I guess I was ahead of the curve because I moved my accounts from Wachovia and Bank of America several years ago to a much more user friendly regional bank (owned by a Canadian bank) that seems to actually value my business. Frank Rich has a column that looks at what banking greed and reckless behavior has wrought. Here are some highlights:

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Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.
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The White House’s chief economic hand, Lawrence Summers, has repeatedly announced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.
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Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.
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Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.
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If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all.

1 In 5 Homeowners Underwater on Mortgage

Less we forget what Republican economic policies have wrought, this article from Reuters is a good reminder. Roughly 20% of homeowners now find themselves owing more on their mortgages than their homes are worth in today's real estate market. Yet McSenile wonders why confidence is down and the GOP brand is about as popular as poison with many voters. The deregulation mantra has certainly yielded a heavy, heavy cost. To make matters worse, some project the number of homeowners with such upside down loans may increase to 1 in 4. Of course as property values fall, municipal revenues based on tax assessments will follow and create more downward pressure on the economy. The next president has a terrible hole to dig the country out of compliments of the Chimperator and a GOP controlled Congress until January 20, 2007. Here are some highlights:

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NEW YORK (Reuters) - Nearly one in five U.S. mortgage borrowers owe more to lenders than their homes are worth, and the rate may soon approach one in four as housing prices fall and the economy weakens, a report on Friday shows. About 7.63 million properties, or 18 percent, had negative equity in September, and another 2.1 million will follow if home prices fall another 5 percent, according to a report by First American CoreLogic.

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Seven hard-hit states -- Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio -- had 64 percent of all "underwater" borrowers, but just 41 percent of U.S. mortgages. This is very much a regional problem, and people tend to forget that," said David Wyss, chief economist at Standard & Poor's, who expects home prices nationwide to fall another 10 percent before bottoming late next year.

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JPMorgan Chase & Co, one of the biggest mortgage lenders, on Friday offered to modify $70 billion of mortgages to keep a potential 400,000 homeowners out of foreclosure. Bank of America Corp, which bought Countrywide Financial Corp in July, also has a large loan modification program.

*

Last week, Wachovia Corp said borrowers with its "Pick-a-Pay" ARMs and living in or near Stockton and Merced, California, owed at least 55 percent more on their mortgages, on average, than their homes were worth.

Home Construction Drops 25 Percent - Largest Drop in 27 Years

As a business owner friend said in an e-mail to me today, "we are seeing signs of a real shit storm coming" in the U.S. economy, even as most of the GOP presidential candidates continue to act as if the economy is not too bad. This story (http://www.washingtonpost.com/wp-dyn/content/article/2008/01/17/AR2008011700248.html) from the Washington Post about the huge drop in home construction adds to the dark picture. Whining and hand wringing will not fix the problem and I hope someone in the federal government wakes the Hell up soon. Meanwhile, fasten your financial seat belt - there is real turbulence ahead. Here are some highlights:

WASHINGTON -- The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go. The Commerce Department reported Thursday that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.

Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession. The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country. Housing construction fell by 30.8 percent in the Midwest and was down 25.8 percent in the Northeast and 19.6 percent in the West. The decline in the South was a smaller 3.3 percent. Economists said the weakness showed that the housing correction was getting worse since the turmoil in financial markets hit in August.

Last week, KB Home, one of the nation's largest home builders, said losses in the fourth quarter had ballooned to more than $770 million. Many economists believe the housing sector will remain weak through this year before starting to stage a rebound in 2009.

House prices slip in half of U.S. cities

MSN MoneyCentral has more housing news (http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/HomePriceReport.aspx). Much of it is not good, but much depends upon where one is in the country. Some states are relatively stable, while others are seeing really negative market forces developing. The data underline a drumbeat of dismal housing headlines this week:

* RealtyTrac, which collects data on foreclosures, today reported a 94% year-over-year increase in foreclosure filings for October. There is now a default notice, auction sale notice or bank repossession for one in every 555 U.S. households -- though that's actually down from the peak in August.

* A respected gauge of home prices, the 20-city S&P/Case-Shiller Index, reported Tuesday that home prices fell 4.5% in the third quarter compared with the previous year, the fastest drop in the index's 20-year history.

* S ales of existing homes, the largest share of the real-estate market, fell for the eighth straight month -- by 1.2% since September and 20.7% since this time last year, the National Association of Realtors reported Wednesday. It said prices had declined 5.1% over the same period.

* Global Insight, a Boston-area economic analysis firm, predicts the foreclosure crisis will have "profound economic effects in 2008," including a $1.2 trillion loss in home values and at least 1.4 million new foreclosures.

* The Calculated Risk blog quotes Goldman Sachs analysts predicting a "substantial" drop in home values nationally -- about 15%, with possible losses in Florida of 30%. If a recession happens, prices could fall by 30% across the country, the report says.

And yet, housing experts urge homeowners to keep things in perspective: Although home prices have dropped from last year's peak, they still retain most of the value gained in the price run-up from 2001 to 2006, says economics professor John Quigley at the University of California, Berkeley. (Compare the five-year and one-year appreciation rates for the OFHEO-tracked cities here; only one metro area -- Detroit -- is in negative territory.)

Wells Fargo to take $1.4 billion charge for bad loans

The hemorrhaging just keeps on flowing. This Yahoo New story (http://news.yahoo.com/s/nm/20071128/bs_nm/wellsfargo_charge_dc) looks at the both Well Fargo's situation and the larger picture in the housing industry. I hope at some point some serious question begin to be asked about how such risky lending practices were allowed in the first place. Here are some story highlights:

NEW YORK (Reuters) - Wells Fargo & Co (WFC.N), the second-largest U.S. mortgage lender, said on Tuesday it would take a $1.4 billion fourth-quarter charge largely related to losses on home equity loans as the nation's housing market deteriorates. The company, which is also the fifth-largest U.S. bank, said it also was significantly scaling back making home equity loans through brokers, citing a need to tighten lending standards and reduced demand from investors to buy the loans. Wells Fargo said in July it would stop making subprime home loans, which go to people with weaker credit, through brokers.

Wells Fargo said it would put its riskiest $11.9 billion of home equity loans into a "special liquidating portfolio." It expects losses in this portfolio will total $1 billion over 2008 and 2009, and decline over time as loans are repaid. The $11.9 billion represents about 14 percent of the $83.4 billion of home equity loans in Wells Fargo's portfolio, and about 3 percent of total loans outstanding as of September 30. Wells Fargo said it expects the $1.4 billion charge to "adequately cover all losses inherent in its portfolios."

Wells Fargo announced the write-down after Chief Executive John Stumpf projected in a November 15 presentation "elevated" home equity loan losses into 2008. Lamenting that "we have not seen a nationwide decline in housing like this since the Great Depression," he said: "I don't think we're in the ninth inning of unwinding this. If we are, it's an extra-inning game." Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Wachovia Corp (WB.N) are among the many other banks to announce mortgage-related write-downs of $1 billion or more this month. Olson, from Wholesale Access, said: "Real estate values will likely plummet in 2008 and 2009. You don't want any high LTV loans in your portfolio because you'll be under water."

Sadly, many homeowners who bought at the peak of the housing bubble and who put little or no money down on their homes are going to find themselves seriously under water and will not be able to sell their homes for enough to cover their loan payoffs. As another Yahoo News story indicates (http://news.yahoo.com/s/nm/20071127/us_nm/usa_economy_homes_index_dc;_ylt=Al4YEF.AuC5rBoyIuRL9_Z2s0NUE), home prices are dropping significantly in some markets. I believe the Hampton Roads area will be somewhat insulated due to the continual rotation of military personnel through the market. Other areas will not be so lucky:

NEW YORK (Reuters) - Prices of existing U.S. single-family homes in the third quarter slumped 4.5 percent from a year earlier, matching a record decline from the previous period as the housing downturn deepened, according to a national home price index on Tuesday. The S&P/Case-Shiller National Home Price Index fell 1.7 percent from June, marking the largest quarterly decline in the index's 21-year history, S&P said in a statement.

The quarterly S&P/Case-Shiller index has been falling since the second quarter of 2006 as lenders clamp down on lending to risky borrowers who had depended on home price gains to keep their homes. Rising foreclosures are adding to soaring inventories of unsold homes, depressing prices further. Florida is the hardest hit state, with prices in the Tampa and Miami areas down 11.1 percent and 10 percent respectively over the past year, the indexes show. Home prices around San Diego, California, and economically depressed Detroit, Michigan declined by 9.6 percent over the 12-month period.

Lehman Brothers said the decline in home prices is the start of an extended decline in the market. "We look for home prices to fall well into 2009 as excess inventory is slowly cleared and foreclosed homes return to the market at a discounted price," the company said in commentary published Tuesday. This will translate to a 15 percent decline in national home prices from peak to trough, Lehman Brothers said.

A 15% decline on a $300,000 home equates to a $45,000 price drop. For folks with 100% loans or even 95% loans, the math shows how painful the situation will become for many homeowners .

Wall Street Bets on an Impending Recession

I came across this Washington Post story (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/26/AR2007112602206.html) after I had done the previous post on the Citigroup job cuts. I guess it is nice to have validation that I am not the only one thinking that a rough ride is ahead for the economy. I still believe that unless something changes quickly to revive the housing market, the recession could be fairly severe.

Of course, the story does not go into how things got to their current status: a largely unregulated mortgage industry that allowed loans to be made to those who should never have been approved for them and on terms that only made sense if housing prices continued to sky rocket. I have yet to see any industry properly regulate itself when quick money is to be made with any downside being left for others to pick up. Perhaps the formerly GOP controled Congress should have worried more about the economy and what was happening in the residential mortgage industry that about what was going on in people's bedrooms. I suspect most rational voters [obviously the worse Christianist wingnuts are not rational] are going to care more about a severe recession than the Federal Marriage Amendment. Here are some story highlights:

Wall Street is betting on a recession. Investors in stocks and bonds are paying prices that indicate they believe a snowballing housing crisis and worsening credit crunch will soon tip the U.S. economy into a recession, analysts said. Many economists, including leaders of the Federal Reserve, don't think things will get that bad, but some say the risk of a serious downturn has risen in recent weeks.

In a view increasingly typical among Wall Street economists, analysts at Merrill Lynch published a research note yesterday with the headline: "We believe we are going to see a recession in '08." Widespread expectations of a recession could be self-fulfilling because of how financial markets and mainstream America are interconnected. If investors are sufficiently convinced a recession is ahead, they would be reluctant to lend money to businesses that want to expand, making it so.

Higher interest rates for risky mortgages, for example, could make it difficult for would-be buyers to afford a home, which could cause prices to drop further. That, in turn, could spur more foreclosures, which could lead financial institutions to further increase rates they charge on mortgages. "These things feed off of each other," Wyss [chief economist of Standard & Poor's] said.

The potential freeze in bank lending could mirror the savings and loan crisis of the early 1990s, a major cause of the 1990-91 recession. "In any recession, you get to a tipping point where sentiment unravels and feeds on itself. Psychology takes over," said Mark Zandi, chief economist of Moody's Economy.com.

The Ripple Effect Contunues to Grow: Citigroup Plans New Round Of 'Massive' Job Cuts

The negative effects of the housing market melt down and sub-prime mortgage loan bust is continuing to spread. As CNBC is reporting (http://www.cnbc.com/id/21974307), Citigroup may be about to announce a huge layoff of personnel. Some estimates put the number as high as 45,000 employees. Obviously, as more lenders lay off employees, the number of families put in danger of not being able to pay bills and/or at risk losing their homes will grow. Locally, there are MANY Realtors, loan officers, settlement companies and others already in severe financial straits - and Virginia is less hard hit than many states. The outlook is ugly. Here some story highlights:

Citigroup, Wall Street’s largest financial services firms, is planning its second round of large-scale layoffs in less than a year, CNBC has learned. People inside Citigroup say the firm hasn’t set a target number of cuts from its roughly 320,000 employees. But people with knowledge of the matter have described the pending job reductions as "massive" and "large." The total number could reach as high as 45,000, these people estimate.

[I]n recent months, Citigroup has been hit with big losses from its exposure to the decimated mortgage-bond market. After initially announcing a $5 billion write-down because of mortgage-related losses, Citigroup announced that the write-down in profits could be as high as $11 billion. In the meantime, senior officials inside Citigroup are telling people that the firm is preparing for large layoffs. In some cases, the layoffs have already begun, with managers being told by their supervisors that they have to eliminate whole departments.

Obviously, the holiday season is NOT going to be very nice for a lot of people.

New Wave of Mortgage Failures Could Create a Nightmare Economic Scenario

The news on the U. S. housing market front just seems to get worse by the day. This story (http://biz.yahoo.com/ap/071124/apfn_doomsday_scenario.html?.v=1) takes a look at precisely how bad things may yet become in some real estate markets that are already reeling from a drop in sales combined with ballooning foreclosure rates. From what I see in the local market and what is happening to both homeowners and real estate investors, I believe that things in fact will get very bad. Significant drops in resale prices could leave many homeowners with little option but to walk away from their homes saddled with mortgage balances in excess of their decreased market value. Here are some highlights:

Soaring mortgage default rates this year already have shaken major financial institutions and the fallout from more of them, some experts say, could spread from those already battered banks into the general economy. The worst-case scenario is anyone's guess, but some believe it could become very bad.

"We haven't faced a downturn like this since the Depression," said Bill Gross, chief investment officer of PIMCO, the world's biggest bond fund. He's not suggesting anything like those terrible times -- but, as an expert on the global credit crisis, he speaks with authority. "Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth," he said. "It does keep me up at night."

Some 2 million homeowners hold $600 billion of subprime adjustable-rate mortgage loans, known as ARMs, that are due to reset at higher amounts during the next eight months. Subprime loans are those made to people with poor credit. Not all these mortgages are in trouble, but homeowners who default or fall behind on payments could cause an economic shock of a type never seen before. Some of the nation's leading economic minds lay out a scenario that is frightening. Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy.

The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida. Builders like Chicago's Neumann Homes, which filed for bankruptcy protection this month, could go under. The top 10 global banks, which repackage loans into exotic securities such as collateralized debt obligations, or CDOs, could suffer far greater write-offs than the $75 billion already taken this year.

Massive job losses would curtail consumer spending that makes up two-thirds of the economy. The Labor Department estimates almost 100,000 financial services jobs related to credit and lending in the U.S. have already been lost, from local bank loan officers to traders dealing in mortgage-backed securities. Thousands of Americans who work in the housing industry could find themselves on the dole. And there's no telling how that would affect car dealers, retailers and others dependent on consumer paychecks.

Meanwhile, the number of U.S. homes in foreclosure is expected to keep soaring after more than doubling during the third quarter from a year earlier, to 446,726 homes nationwide, according to Irvine, Calif.-based RealtyTrac Inc. That's one foreclosure filing for every 196 households in the nation, a 34 percent jump from just three months earlier. Such data suggests more Americans could lose their homes than ever before, and those in peril are people who never thought they'd welsh on a mortgage payment. They come from a broad swath -- teachers, pharmacists, and civil servants who were lured by enticing mortgage terms.

The Carnage on Wall Street is All About the Great Housing Slump.

Paul Krugman has a good column in the New York Times (http://www.nytimes.com/2007/11/23/opinion/23krugman.html?em&ex=1195966800&en=3aec75ee4c87fe35&ei=5087%0A) that looks at how the country arrived where it is in terms of the housing market/mortgage industry melt down. He likewise focuses on the fact that many of those responsible are getting a free pass in terms of NOT being held accountable. Here are some highlights:

“What were they smoking?” asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose. The answer, of course, is that they were high on the usual drug — greed. And they were encouraged to make socially destructive decisions by a system of executive compensation that should have been reformed after the Enron and WorldCom scandals, but wasn’t.

In a direct sense, the carnage on Wall Street is all about the great housing slump. This slump was both predictable and predicted. “These days,” I wrote in August 2005, “Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn’t seem like a sustainable lifestyle.” It wasn’t. But even as the danger signs multiplied, Wall Street piled into bonds backed by dubious home mortgages. Most of the bad investments now shaking the financial world seem to have been made in the final frenzy of the housing bubble, or even after the bubble began to deflate.

Now the bill is coming due, and almost everyone — that is, almost everyone except the people responsible — is having to pay. The losses suffered by shareholders in Merrill, Citigroup, Bear Stearns and so on are the least of it. Far more important in human terms are the hundreds of thousands if not millions of American families lured into mortgage deals they didn’t understand, who now face sharp increases in their payments — and, in many cases, the loss of their houses — as their interest rates reset. And then there’s the collateral damage to the economy.

[B]ad housing investments are crippling financial institutions that play a crucial role in providing credit, by wiping out much of their capital. In a recent report, Goldman Sachs suggested that housing-related losses could force banks and other players to cut lending by as much as $2 trillion — enough to trigger a nasty recession, if it happens quickly. How did things go so wrong?

Part of the answer is that people who should have been alert to the dangers, and taken precautionary measures, instead blithely assured Americans that everything was fine, and even encouraged them to take out risky mortgages. Yes, Alan Greenspan, that means you. But another part of the answer lies in what hasn’t happened to the men on that Fortune cover — namely, they haven’t been forced to give back any of the huge paychecks they received before the folly of their decisions became apparent.

The point is that the subprime crisis and the credit crunch are, in an important sense, the result of our failure to effectively reform corporate governance after the last set of scandals.

Stocks Fall Amid Economic Jitters

On the eve of the onset of the biggest consumer shopping period of the year, the economic front does not look cheery. Not surprisingly, with all the bad economic news and high oil prices, retailers are worried and rightfully so. In my view, things are going to get much worse before they get better. Note how the housing market free fall and high energy costs combine to play through out the news. Here are some highlights form a mew Washington Post story (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/21/AR2007112100362.html?hpid=moreheadlines) that some some of the unpleasant economic news:

NEW YORK -- Wall Street resumed its slide Wednesday as unease about the wilting mortgage market and the broader economy triggered selling ahead of the unofficial start of the holiday shopping season. The Standard & Poor's 500 index and the Dow Jones industrial average each fell by more than 1.5 percent, with the Dow giving up more than 210 points. The decline in the S&P 500 left the index in negative territory for the year. Many investments such as mutual funds either track or are measured against the S&P.

Economic readings did little to instill confidence among investors. The Mortgage Bankers Association said mortgage application volume fell 3.6 percent last week. Meanwhile, the slump in housing suggested banks will continue to face souring mortgage debt. Government-sponsored lender Freddie Mac, which reported a $2 billion quarterly loss Tuesday and saw shares plummet nearly 29 percent, declined again Wednesday after an analyst downgrade. Countrywide Financial Corp., the nation's largest mortgage lender, also lost further ground.

In other economic news, the Conference Board suggested an economic slowdown could accelerate in the coming months amid rising costs and further weakness in the housing market. Also, the Reuters/University of Michigan consumer sentiment survey showed its lowest reading in two years _ an unwelcome development for retailers entering what is for many the most important period of the year.

And with oil prices briefly reaching a high of $99.29 a barrel in overnight electronic trading, the question among investors is no longer if oil will reach $100 a barrel, but when _ and how long it will stay there. Crude futures fell 74 cents to settle at $97.29 per barrel on the New York Mercantile Exchange after an Energy Department report showed supplies at a closely watched oil terminal in the Midwest rose for the first time in weeks.

"The high price of oil has hurt retail, entertainment, restaurants and clothing," said Don Hodges, chairman of Hodges Capital Management in Dallas. He attributes the market's recent retrenchment to concerns about energy, the consumer, housing and banking among other factors and notes that previous sharp drops in the market have occurred when investors have faced a similar confluence of worries.

Freddie Posts Loss, May Cut Dividend; Citigroup Takes Huge Hit; Expectations of Recession Increase

The housing market and subprime melt down continues and has hit Freddie Mac, one of the two largest makers of the secondary market for home mortgage loans, as reported by Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601087&sid=atzHj5IWr2ms&refer=home). Meanwhile Citigroup may take a hit of up to $15 billion overall from problem loans. Here are highlights from the Bloomberg story:

Nov. 20 (Bloomberg) -- Freddie Mac, the mortgage buyer that has helped almost 50 million Americans purchase a home, posted its largest-ever loss and said ``significant deterioration'' in the housing market may force it to cut its dividend and raise capital. The shares tumbled 35 percent, the biggest decline since the stock began trading in 1988. Freddie Mac reported a net loss of $2.02 billion, or $3.29 a share, at least triple what some analysts' estimated, after providing $1.2 billion for credit expenses and reducing the value of assets by $3.6 billion.

``It's as bad as it possibly could be,'' said Howard Shapiro, an analyst at Fox-Pitt Kelton in New York. Shapiro today downgraded Freddie Mac shares to ``sell'' from ``overweight.'' The biggest slump in the housing market in 16 years broadened its reach to Mclean, Virginia-based Freddie Mac and the larger Fannie Mae, two institutions set up by Congress to help foster American home ownership. The companies, which own or guarantee 40 percent of the $11.5 trillion U.S. home loan market, are recording more losses as mortgage defaults and foreclosure filings rise to record levels.

Wells Fargo & Co. Chief Executive Officer John Stumpf last week said the housing market was the worst since the Great Depression. Banks and securities firms worldwide have already reported about $50 billion in losses from subprime mortgages, loans given to borrowers with weak credit that have been defaulting at a record pace. The total damage may reach $400 billion, Deutsche Bank analysts said last week. Foreclosure filings doubled to 223,538 in September from a year earlier as subprime borrowers struggled to make payments on adjustable-rate mortgages, RealtyTrac Inc. said last month.

Of course, the Chimperator and Emperor Cheney continue to pretend that the U. S. economy is strong. Meanwhile, here's highlights on the Citigroup disaster (http://www.bloomberg.com/apps/news?pid=20601103&sid=aQk5LGM7y06M&refer=news):

Nov. 20 (Bloomberg) -- The risk that banks and brokerages from Citigroup Inc. to Bear Stearns Cos. will default on their debt is accelerating as analysts increase their estimates of losses from subprime mortgages, credit-default swaps show.

The increases are the biggest in two weeks as more analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to grow. Goldman Sachs Group Inc. estimates Citigroup's losses will expand to $15 billion in the next two quarters and CreditSights Inc. analysts said UBS AG, Europe's largest bank by assets, may have lost as much as $9 billion on collateralized debt obligations. ``There's still a lot more uncertainty to come,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. ``We understand the risks now, but we don't know how to measure them yet.''

The losses at banks and securities firms are fueling concern that rising delinquencies on home loans to people with poor credit will drag down the economy. The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion, Goldman Sachs economists said last week.

The number of economists forecasting a U.S. recession almost doubled in the past two months, according to a survey by the National Association for Business Economics. Nine of 50 economists pegged the odds of a contraction over the next 12 months at 50 percent or higher, according to a poll taken from Oct. 22 to Nov. 6. Five of 46 held a similar view in September.

As Owners Feel Mortgage Pain, So Do Renters

As this New York Times article (http://www.nytimes.com/2007/11/18/us/18renters.html?_r=1&hp&oref=slogin) spotlights, it is not just homeowners who are losing their stable homes due to the surging number of foreclosures. As real estate investors begin to go under - whether due to having other rental properties vacant or acquisition/rehab/resale deals crash and burn due to the lack of sales in the housing market - many tenants are finding themselves sucked into the foreclosure maelstrom. I have had investor clients lose properties and the tenants are caught in the cross fire even though they have made every rent payment on time. I continue to believe things are going to get much messier. Here are some story highlights:

LAS VEGAS — In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties. Some live in big apartments, others in houses owned by small investors who got in over their heads.

There are no exact figures for how many renters have been evicted because of foreclosures, but a survey taken this year by the Mortgage Bankers Association found that one in eight foreclosures was non-owner-occupied. This figure probably underestimates the problem, according to the association, because buildings receive tax benefits if they are registered as owner-occupied. More than one million properties are expected to enter foreclosure this year.

“This is an explosion,” said Judith Liben, a lawyer at the Massachusetts Law Reform Institute. “This isn’t business as usual. These are investors that overleveraged themselves, and the renters are collateral damage in the mortgage crisis.” Foreclosing lenders typically evict tenants in order to sell the property, said Vicki Vidal, senior director of loan administration and government affairs at the Mortgage Bankers Association. “Banks don’t want to be landlords,” Ms. Vidal said. “They’re in the business of making mortgages. You need to recoup the money to keep the process moving.”

The House [of Representative] on Thursday passed a broad mortgage act that includes protections for renters. The House act, which the lending industry has opposed, would require new owners to continue the leases of tenants for up to six months after foreclosure. In a statement, the White House said it opposed a number of provisions in the House mortgage bill, but did not single out protection to renters.

“A lot of the investors were subprime, but the market was so great they could keep refinancing and make the mortgage payments with no problem,” said Anna Marie Johnson, the director of Nevada Legal Services, whose clients increasingly include displaced tenants.

Stopping the Subprime Mortgage Crisis

As an attorney with a law practice that handles a great deal of real estate work, I have a good vantage to observe the rising number of foreclosures, the increased number of families being forced from their homes, and the step decline in real estate sales and new construction, all of which undermines the larger economy as a whole. Therefore, I found this op-ed in the New York Times of interest (http://www.nytimes.com/2007/07/25/opinion/25rosner.html), portions of which are highlighted as follows:

FOR five months, it has been clear that rising delinquencies and foreclosures, coupled with higher interest rates on adjustable mortgages and declining home price appreciation, would undermine the market for mortgage securities. Yet it took Moody’s Investors Service, Fitch Ratings and Standard & Poor’s, the three leading agencies that rate long-term debt, until this month to react to this looming financial crisis, which involves more than $1.2 trillion of subprime mortgages originated in 2005 and 2006 alone. As one investor asked during a recent S.&P. conference call, “What is it that you know today that the markets didn’t know three months ago?”

The subprime crisis has not been averted. In fact, it is still largely ahead of us. The downgrades represent only a small fraction — about 2 percent of the mortgage-backed securities rated for the year between the fourth quarters of 2005 and 2006 — of what the rating agencies suggest could be a mountain of bad debt held by investors, including pension plans, banks and insurance companies. The agencies are primarily downgrading assets with expected losses that are already working their way through the pipeline. They are not projecting future losses.

And the ratings agencies are far from passive arbitrators in the markets. In structured finance, the rating agency can be an active part of the construction of a deal. In fact, the original models used to rate collateralized debt obligations were created in close cooperation with the investment banks that designed the securities.

Fitch, Moody’s and S.&P. actively advise issuers of these securities on how to achieve their desired ratings. They appear to be helping investment banks, hedge funds and fund companies, all of which have a fiduciary obligation to investors, to develop the worst possible product that would still achieve a certain rating.

Unless the government acts, the credit ratings agencies will stand on the sidelines of the coming crisis, doing nothing until it’s already happened.

I believe that we have only seen the leading edge of a huge looming disaster. When the housing industry and mortgage industry take a dive, the entire economy follows in a domino effect. Where is political leadership calling for action on this problem before the bottom falls out?