Will Housing and Deficits Be Trump's Downfall?

With political focus turning to the 2020 presidential election, three particular elements may make  Der Trumpenführer's re-election hopes much more shaky (yea!): The slowing housing market thanks to a combination of rising interest rates, the ballooning trade deficit and impact of Trump's tariffs, and the ballooning federal deficit  which itself will drive up interest rates. Should the housing market continue to slow, it could well drag the economy into recession just as attention on the 2020 election intensifies next year.  A piece in Politico looks at housing's threat to Trump's future - assuming he finishes his term and runs for re-election. Here are highlights:

The luxury real estate market in Manhattan is sagging. The GOP tax law is hitting real estate markets across the nation.

And signs of stress across the broader housing market suggest the industry — which made Donald Trump rich, helped thrust him into the White House and remains a constant obsession for him — could also be one that slows his economy and dents his chances at a second term.

The housing market may not cause the next recession like it did in 2008. But weakness in the construction of new homes, sales of existing homes and affordability for millennials looking to buy for the first time could contribute to a recession arriving as soon as next year or prolong any downturn. In addition to 2008, declines in the housing market were tied to recessions in 1974, 1980 and 1990-91, raising concerns that history is about to repeat.

One area where housing-market stress is obvious is the one Trump knows best: High-end apartments in Manhattan, where prices are now dropping as foreign buyers disappear and wealthy residents flee to lower-tax states.

“When you look at the New York metro area, we are moving from an extended period of stagnation to one of outright softening,” said Joseph Brusuelas, chief economist at RSM, U.S.

The Manhattan declines are directly linked to the late-2017 tax law that capped the mortgage interest deduction and indirectly to the capping of the state and local tax deduction, Brusuelas said. “People joke that they should have called the tax bill the ‘Everybody Moves to Austin Act.’ This wasn’t virtuous tax policy. It was punitive tax policy.”

Trump’s New York home is not the only blue state where the housing market has taken a hit following the tax law changes. Markets are also suffering across the Northeast, where sales of new homes dropped 16.1 percent in December, according to brokerage firm Redfin.

The cap on the state and local tax deduction is already showing in migration rates, according to Laurie Goodman, vice president of housing finance policy at the Urban Institute. . . . New York, California, Illinois and New Jersey topping the states with the largest flows of people leaving between July 2017 and July 2018. The largest in-migration states over that period — Florida, Arizona, Texas and North Carolina — have lower taxes.

A recent decline in mortgage rates following the Federal Reserve’s decision to pause its campaign of interest-rate hikes has improved the demand for new and existing homes somewhat in the last couple of months. But overall, the numbers suggest a broad softening in the housing market. Homebuilding investment shrank 0.2 percent last year, the worst performance since 2010. . . . . the industry’s doldrums could make an already slowing 2019 even slower and make the next recession even worse when it arrives.

“Once the economy moves into recession, so maybe mid-2020, the significant decline in residential investment will exacerbate affordability problems,” said Brusuelas. “The home affordability index and first time buyer affordability index are both showing significant signs of stress.”

Taken together, the declines in high-end markets and across states hit by the tax law changes — coupled with affordability problems for new buyers and reduced construction of new homes — suggest that the market could contribute to the next recession and make life difficult for Trump.

“I see recession hitting before the 2020 election,” said McCabe. “And it’s going to play a part in that election.”

The other area that may threaten Trump is the failure of his tariffs and the further ballooning of the federal deficit thanks to the disastrous Trump/GOP 2017 tax cuts notwithstanding the GOP's disingenuous lies that "entitlements" are to blame.  A column in the New York Times looks at this other thorn in Trump's side.  Here are excerpts:

[O]ver two years of unified G.O.P. control of government, a funny thing happened: Both deficits surged. The budget deficit has hit a level unprecedented except during wars and in the immediate aftermath of major economic crises; the trade deficit in goods has set a record.

What’s the significance of this tide of red ink? . . . . Trump’s twin deficits tell us a lot about both the tweeter in chief and his party — namely, that they’re both dishonest and ignorant.

About the dishonesty: Is there anyone left who believes that Republicans ever really cared about debt and deficits? The truth is that the phoniness of their fiscal posturing should have been obvious all along. . . . . The moment they had a chance, the very politicians who grandstanded about the need for fiscal responsibility rammed through a huge tax cut for corporations and the wealthy — a tax cut that is the main reason for the exploding budget deficit.  Oh, and the tax cut has utterly failed to deliver the promised investment boom.

What about the ignorance? As many people have pointed out to no avail, Trump is all wrong about what trade deficits do. . . . . Trump is completely wrong about what causes trade deficits in the first place. In fact, his own policies have provided an object lesson in the falsity of his vision.

In the Trumpian universe, trade deficits happen because we made bad deals — we let foreigners sell their stuff here, but they won’t let us sell our stuff there. So the solution is to throw up barriers to foreign products. “I am a Tariff Man,” he proudly proclaimed.

The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries.

Tariffs can, of course, reduce imports of the goods subject to the tariff, and hence reduce the trade deficit in that particular industry. But it’s like pushing on a balloon: You can squeeze it in one place, but it will just inflate by the same amount somewhere else. The process through which this conservation of deficits takes place can vary, although a stronger dollar, which hurts exports, is usually one major channel. But the basic result, that tariffs don’t actually reduce the overall trade deficit, is clear.

Sure enough, the Trump tariffs of 2018 did, in fact, lead to a sharp fall in imports of the goods subjected to tariffs. But imports of other goods rose, while exports performed poorly. And the overall trade deficit went up substantially, which is exactly what you should have expected. After all, that big tax cut for the wealthy reduced national savings.

And the supposed cause of the deficit isn’t the only thing Trump gets wrong about trade policy. He also keeps insisting that foreigners are paying his tariffs. In reality, prices received by foreign exporters haven’t gone down. Prices paid by U.S. consumers have gone up, instead.

A slowing housing market, a ballooning federal deficit that increases interest rates, and rising costs and decimated market sectors - think GM's closures - due to the Trump tariffs. The perverse side of me hopes things worsen if it will help ride the nation of Trump/Pence.

Are Republicans Still Trying to Trash the Economy?

During the first four years of Barack Obama's presidency, the Congressional Republicans did everything possible to obstruct measures that would have helped American workers and families and lessened the economic turn down.  In the GOP's sick mind, it was better to harm millions of Americans than to allow Obama to be successful.  Now, in the wrangling over what must be done to keep the U.S. government from going over the "fiscal cliff" it seems that the GOP is continuing to seek to trash the economy at the expense of the country's average citizens.  In today's GOP, the party always trumps the best interests of the nation.  But, some would ask why would the GOP do this?  The answer is found in an article by David Frum in CNN that looks at the GOP's bleak future if Obama and the Democrats are perceived as bring about a growing economy.  My prediction?  The Congressional GOP will seek to push the country off the "fiscal cliff" for partisan gain.  Here are highlights:

Here's the next thing the Republican party needs to rethink. What does it say if and when the United States returns to prosperity?

For five years, U.S. politics have been shaped by economic hardship. In 2008 and 2010, voters rejected the party in power, booting Republicans out of the White House, and then sweeping Democrats out of Congress.

Mitt Romney campaigned in 2012 on the slogan, "Obama isn't working." President Obama responded by attacking Romney as out of touch, assuming (probably correctly) that he could not win by running on his record.

But the indicators are suggesting that by 2013 and 2014, the Obama record will begin to look a lot better, assuming, that is, that the two parties in Washington don't recklessly push the country off the fiscal cliff at the end of the year.

The nation's economy added 171,000 jobs in October 2012, for a total of almost 700,000 in the four months before Election Day. More than half the jobs lost in the crash of 2008-2009 have now been recovered, even as public-sector employment has shrunk by a net 500,000.

As household debt burdens become lighter, consumers express more confidence. They are allowing themselves to spend a little more. They are even buying new homes again. Housing starts in October 2012 rose to a level 41.9% over a year before.

Accelerating economic activity is rapidly reducing the budget deficit. The deficit has contracted since 2009 at the fastest rate since the end of World War II, faster even than during the late 1990s boom.

As they do glimpse that better future, two things will happen in politics:

1) President Obama will begin to claim more credit. In 2012, the word "stimulus" went unmentioned by Democrats. It was Republicans who tried to make political use of the $800 billion spent on job creation in 2009-2011. In 2013-2014, however, the shoe may suddenly rematerialize on the other foot.

2) Republicans will discover that their old "Obama isn't working" theme has become obsolete. By 2014, again assuming that Congress does not leap off the fiscal cliff, it will likely look as if Obama is working. What then? If negative messaging failed in 2012, it will fail bigger in 2014.

For too long, the Republicans have predicted apocalypse, debt crisis, the loss of freedom, the overthrow of the constitution. As the economy improves, that doom-saying will seem even more out of touch than ever.

No Settlement Should Be Made with Mortgage Lenders

As the economy continues in recession (if one is honest in their assessment we ARE still in recession) and the residential housing markets remains in the toilet, everyone is suffering except for those who created the mess: reckless mortgage lenders and Wall Street racketeers who knowingly packaged questionable loans in what's called "securitizing" and sold them to investors. The end result is that investors got burned big time and that no one was accountable for handling foreclosures - and it seems at times even servicing the loans.

Years into the mess, and lenders still are not being held to account and the utter mismanagement and incompetence of servicers and those allegedly in charge of loan modifications make the Three Stooges look like highly competent rocket scientists. I have clients who deserve loan modifications based on changed circumstances, etc., yet all they get is the run around and find themselves dealing with morons who lose paperwork over and over and over again. These irresponsible lenders were seeking a global settlement with the state attorney generals - which would have let them get off in an obscene way. Now, that effort seems to be unraveling as California has pulled out of the deal. Rather than letting the real villains off while prosecuting small bit players, the states need to go after the real culprits and send them to jail. The Los Angeles Times looks at California's decision not to let the lenders and Wall Street off easy. Here are some highlights:

A slew of state attorneys general banded together 11 months ago to try to extract a multibillion-dollar settlement from banks for the way they mishandled foreclosures. The prospects of a deal have been clouded, however, by dissension in the AGs' ranks. On Friday, California Atty. Gen. Kamala Harris became the latest to drop out, announcing that she would pursue her own investigation. Top prosecutors in half a dozen other states, including New York, Nevada and Massachusetts, have already pulled out of the multi-state talks, saying they were concerned that the group wasn't demanding enough from banks in exchange for settling the states' claims.

We're all for holding lenders and loan servicers accountable for the illegal shortcuts they've taken and misrepresentations they've made, and Harris' frustration with the slow pace of negotiations is understandable.

In addition to fairly compensating those who were directly harmed, the AGs' goal should be to make sure struggling borrowers are treated reasonably, rationally and efficiently — something that overwhelmed lenders have failed to do.

Even a borrower who has no chance of avoiding foreclosure has rights, and banks ignored them in their sloppy and corner-cutting responses to the skyrocketing number of defaults. There's also a good argument to be made that banks violated consumer protection laws by making promises they didn't keep about loan modifications for troubled borrowers.

That includes enabling more borrowers in hardship to write off some of their debt, making it easier for troubled borrowers to sell homes that are worth less than their mortgages, and ending the indefensible practice of lenders foreclosing on homes while the owners are negotiating with them for more affordable loans.

The truth is that the lenders don't give a damn about fair treatment of borrowers. And they don't give a damn about the ultimate cost to taxpayers who will end up paying the price as lenders are bailed out by HUD, FHA, VA and Fannie Mae and Freddie Mac. The lenders have been winning while everyone else gets screwed over. It's time for this to end.

The GOP's Phony Fear Factor

The GOP always has to have someone or something to blame for the state of society or the state of economy. In respect to the state of society, it's gays, blacks, immigrants (both legal and illegal), non-Christians, etc. who always bear responsibility in the GOP/Christianist warped world view. In economic matters, it's almost always taxes and/or government regulation. The fact that none of these supposed culprits and causes is not true never matters in the GOP/Christianist fantasy land. Many business owners would increase hiring if the business demand was present - I would do so personally if anyone in Washington would make the effort to stabilize the housing market and get real estate sales flourishing once again. Unfortunately, in that realm, there's too little regulation to require banks and mortgage lenders to restructure loans and stop pushing loans to foreclosure where they know they will be bailed out by FHA, HUD, mortgage insurers, etc. - leaving taxpayers to bear the expense and generating legions of evicted families and further depressed housing prices as the end product. In the New York Times Paul Krugman looks at the GOP phony mantra that government regulation is blocking economic recovery

The good news: After spending a year and a half talking about deficits, deficits, deficits when we should have been talking about jobs, job, jobs we’re finally back to discussing the right issue.

The bad news: Republicans, aided and abetted by many conservative policy intellectuals, are fixated on a view about what’s blocking job creation that fits their prejudices and serves the interests of their wealthy backers, but bears no relationship to reality. . . . . The answer, repeated again and again, is that businesses are afraid to expand and create jobs because they fear costly regulations and higher taxes.

The first thing you need to know, then, is that there’s no evidence supporting this claim and a lot of evidence showing that it’s false.

[I]sn’t there something odd about the fact that [big] businesses are making large profits and sitting on a lot of cash but aren’t spending that cash to expand capacity and employment? No.

After all, why should businesses expand when they’re not using the capacity they already have? The bursting of the housing bubble and the overhang of household debt have left consumer spending depressed and many businesses with more capacity than they need and no reason to add more.

Republican assertions about what ails the economy are pure fantasy, at odds with all the evidence. Should we be surprised? At one level, of course not. Politicians who always cater to wealthy business interests say that economic recovery requires catering to wealthy business interests. Who could have imagined it?

Yet it seems to me that there is something different about the current state of economic discussion. Political parties have often coalesced around dubious economic ideas . . . . but I can’t think of a time when a party’s economic doctrine has been so completely divorced from reality. And I’m also struck by the extent to which Republican-leaning economists — who have to know better — have been willing to lend their credibility to the party’s official delusions.

[T]his reflects the party’s broader slide into its own insular intellectual universe. Large segments of the G.O.P. reject climate science and even the theory of evolution, so why expect evidence to matter for the party’s economic views?

The truth is that we’re in this mess because we had too little regulation, not too much. And now one of our two major parties is determined to double down on the mistakes that caused the disaster.

Regulations and Taxes Aren't What Is Killing Small Business

As members and demagogues of the GOP endeavor to turn back the clock to the days of the robber barons when regulations and unions were far and few between one of the mantra's is that taxes and government regulations are the principal obstacles to small business success. Like so much coming out of GOP demagogues like Eric Cantor, et. al, it's a lie. A new survey of small business owners underscores the disingenuousness of the GOP's story line. And not surprisingly, one of the biggest drains on small business after the depressed economy is the sky rocketing costs of insurance of all kinds (for my firm, malpractice insurance and health insurance are big ticket items). Here are highlights from McClatchy on the findings:

Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation.

McClatchy reached out to owners of small businesses, many of them mom-and-pop operations, to find out whether they indeed were being choked by regulation, whether uncertainty over taxes affected their hiring plans and whether the health care overhaul was helping or hurting their business. Their response was surprising.

None of the business owners complained about regulation in their particular industries, and most seemed to welcome it. Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath.

"Higher taxes are not good for business, but some of the loopholes and deductions should be looked at," he said. The answer from Rick Douglas — the owner of Minit Maids, a cleaning service with 17 employees in Charlotte, N.C. — was more blunt. "I think the rich have to be taxed, sorry," Douglas said. He added that he isn't facing a sea of new regulations but that he does struggle with an old issue, workers' compensation claims.

Then there's Rip Daniels. He owns four businesses in Gulfport, Miss.: real estate ventures, a radio station and a boutique hotel/bistro. He said his problem wasn't regulation. "Absolutely, positively not. What is choking my business is insurance. What's choking all business is insurance. You cannot go into business, any business — small business or large business — unless you can afford insurance," he told Biloxi's Sun Herald.

"I think the business climate is so shaky that I would not want to undergo any expansion or outlay capital," said Andy Weingarten, who owns Almar Auto Repair in Charlotte. He's thinking about hiring one more mechanic.

Added Barry Grant, the regional president of Meritage Homes Corp., in California, "It starts with jobs. ... There's an awful lot of people sitting on the fence; they're waiting for a sign." One reason hiring remains dampened is the prolonged slump in the housing sector, a driver of the pre-crisis economy.

Jobs - something that the GOP is doing NOTHING to foster is one key to recovery. To that I'd add a return to realistic mortgage and business loan approval procedures (currently, many good borrowers cannot get financing)and a stabilization of the housing market. The later, of course is not on the radar of the GOP.

Housing is Killing the Recovery

At the risk of beating a dead horse, it's time again to look at the engine that drove the Great Recession and which is now killing any real recovery: the housing market. Both the Los Angeles Times and FrumForum have pieces that look at the continuing debacle and the abject failure of Congress and the White House to do anything meaningful to address the problem. Dealing with distressed homeowners every day, I can testify that the so-called Home Affordable Modification Program is little more than a joke. And a sick joke at that. Lenders have no accountability and frankly, most personnel one deals with are utterly incompetent and have about as much reasoning skill as a trained circus dog - no offense intended towards dogs. For almost FOUR years now I have been railing about this issue and nothing meaningful has been done other than a huge bailout to lenders who have done nothing to assist homeowners with legitimate hardships. First, here are highlights from the LA Times:

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Almost anywhere you look, assessments of the state of the economic recovery are muddled — job growth is positive but fading, consumer spending ebbs and flows, corporate profits are surging but corporate spending is not. The exception is housing, on which everyone agrees. The housing market stinks.
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The latest national Case-Shiller index of home prices fell again in April from a year earlier. It was up modestly from March, but since that month marked a new recession low, pushing average prices back to levels not seen since 2002, at best we're bumping along the bottom. About 4.5% of all mortgages are still in foreclosure, more than four times the historical average . . .
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Yet housing is the area in which the government's remedial efforts have been consistently the weakest. The gap between the government's effort to bail out bankers and its effort to bail out homeowners is a national scandal. Under the Troubled Asset Relief Program, the government's bank bailout, some $50 billion was earmarked for mortgage relief; by late last year, according to the Congressional Budget Office, only $8 billion had been committed and much less had been spent.
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HAMP hasn't been a total flop. The redefault rate of less than 20% on its mortgages is about half that of other mortgage relief programs. But it's enough of a disappointment that Treasury officials recently took a step almost unique in their regulatory record: They penalized three big banks for their shortcomings in managing HAMP. The banks are Wells Fargo, Bank of America and JP Morgan Chase.
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The shame of HAMP is that federal mortgage relief didn't have to be so halfhearted. HAMP's drafters had a successful model to work from. That was the New Deal-era Home Owners' Loan Corp., or HOLC, a program that saved 1 million homes from loss in the depths of the Great Depression and completely remade the country's mortgage market in the process.
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What really enabled HOLC to succeed was that its incentives were all aimed at keeping borrowers in their homes. That's not the case with today's mortgage market, where the incentives are canted toward foreclosures. HAMP has done very little to correct that.
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The key to keeping a financially strapped borrower in a home is to modify the mortgage to cut the monthly payment, whether by cutting the interest rate or loan balance or by stretching out the repayment term. What makes this difficult is that often the loan servicer — the bank or office that bills the homeowner and tracks his or her payment history — doesn't own the loan, which has been packaged and sold to investors.
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In fact, servicers have powerful incentives to do the wrong thing — wrong for borrowers, wrong for investors, wrong for the economy. They make more money, and have better guarantees of payment, if they delay modifications, even if they force homeowners into foreclosure.
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[A] bigger flaw is that the government's housing policy doesn't acknowledge that a genuine, lasting solution to the housing crisis means reducing the loan balances of financially stressed homeowners to levels that make sense in terms of today's sharply reduced home values.
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No stimulus program would be as effective today as fixing the residential market. Yet, typically, the momentum in Congress is in the other direction, with House Republicans plotting to repeal HAMP. It's not that they have any better idea; it's that when it comes to helping the economy, they abhor anything but a vacuum.
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The FrumForum column repeats much of the same territory and flat out says that the continued housing disaster is killing the economy. Here are some highlights:
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For those who may think that the housing market has bottomed out and there is a light at the end of the tunnel, think again. That isn’t a light at the end and it’s not a train coming either. It might just be a blistering ray of solar radiation that could evaporate everything it is path, a wave of housing supply that will quickly overwhelm any hope for home price stabilization, much less an actual recovery. There is a shield, however, if politicians, policy makers and regulators can find the fortitude to redefine the American Dream.
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Over the last 6 months, the nation’s housing supply has been artificially (and temporarily) held at bay by moratoriums imposed on the big servicers over foreclosure practices while buyer demand has remained relatively constant. Econ 101 would instruct us that, under this scenario, home prices should rise. Instead, during the same period home prices continued their decline, falling an additional 4-5% on an adjusted basis. According to an increasingly number of economists, including Robert Schiller, we should expect to see this trend continue another 20-25% over the next several years. Why? Because the supply of homes expected to hit the market is more than double all of the homes sold in 2010 and YTD 2011 combined. Large banks, private investors and the GSE’s know this and are racing to the bottom to unload their existing homes before the tsunami hits.
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Recent CNNMoney headlines are telling. “Walk Away from your Mortgage: Time to Get Ruthless” (June 7) highlights the driving force behind all of this supply: underwater homeowners. The number of “strategic” defaulters is accelerating as more people make a basic economic decision to walk away.
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In a recent Fannie Mae survey, 27% of homeowners would consider walking away from their mortgage if home prices keep falling, nearly double from a year ago, and more than 50% no longer believe owning a house is a good investment.
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The number of people who fit into these buckets is staggering: More than 4 million mortgage borrowers are either in foreclosure or are seriously delinquent. Most of their houses will end up on the market as short sales or foreclosure sales. Private estimates put the figure, often referred to as “shadow inventory” at more than 6 million.
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Supply will increase and demand will decrease, driving home prices down, which in turn will create a self-perpetuating cycle. So how do we stabilize home prices if there is limited homeowner demand? The answer, of course, is to reduce the supply through other means.
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What are required are bold governmental initiatives to promote renting as a means to stabilize home prices. Start by accelerating the sale of entire GSE and FHA REO positions, which are worth on the order of $40-$50 billion, to private investors who could form large scale leasing portfolios. Divert what remain of federal and state funds from loan modification programs to rental-assistance programs. Rather than pay mortgage servicers to modify deeply delinquent borrowers who, after modification of the payment, are still underwater on their homes, reward servicers to convert them into tenants at reduced housing payments. Keeping people in homes and kids in schools while avoiding foreclosure signs on front lawns is almost always a good thing. Modifying borrowers to buy time without addressing negative equity is rarely an optimal outcome. And maybe, just maybe, adjust tax incentives to take into account all forms of housing payments, not just mortgage interest.
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I don't necessarily agree with the proposed solution, but at least it would be doing SOMETHING as opposed to nothing which is what is the current reality.

Housing Crisis Is Now Worse Than Great Depression

I know that I sound like a broken record, but when is somebody - indeed ANYBODY - in Washington going to wake up and try to stem the continued free fall of the housing market? I don't care if its a Democrat, Republican, Libertarian or member of some other group that wakes up to the ongoing disaster so long as somebody wakes up and puts in place policy and regulatory reforms that stop the constant downward spiral. Why am I so exercised? Because a new report discloses that nationwide the crash and burning of the housing market is now worse than what happened during the Great Depression. Yet Congress and the White House continue to do nothing of any substance. Here are highlights from CNBC:
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It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.
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"The sharp fall in house prices in the first quarter provided further confirmation that this housing crash has been larger and faster than the one during the Great Depression," Paul Dales, senior economist at Capital Economics in Toronto, wrote in research for clients.
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More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward. Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default.
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Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.

80,150 Hampton Roads Homeowners "Underwater" on Mortgages

The residential real estate market continues its death spiral as members of Congress and the White House dither and do nothing to halt one of the biggest forces dragging the economy downward. The financial industry received billions of dollars in bailout funds and little or nothing has trickled down to distressed homeowners. The result has been plunging home values and more and more people faced with simply walking away from properties no worth far less than what is owed on them It's a national problem and even Hampton Roads which is somewhat cushioned by the large military presence in the region is not exempt from the pain. The Virginian Pilot has a story that looks at the local mess where an estimated 24% of homes are "upside down" and now worth less than the mortgages balances outstanding against them. Here are some highlights:
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Nearly one in four homes with a mortgage in Hampton Roads - 24 percent - is worth less than what is owed on the loan, according to a report released Tuesday. The number of local home-owners who were "underwater" on their loans rose slightly to 80,150 at the end of March, according to CoreLogic, a Santa Ana, Calif.-based company that tracks mortgages nationwide.
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The firm's quarterly report said 22,967 more mortgages in the region will be underwater if home prices decline 5 percent from current levels.
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Economists and real estate experts say that owing more on a home than it is worth is one of the most common precursors to foreclosure. For homeowners who aren't in jeopardy of falling behind on payments, being underwater means they are tied to their homes - unable to sell without paying their lender the difference or negotiating a short sale. That also impacts the local home sales market, said Vinod Agarwal, an economist at Old Dominion University.
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The proportion of homeowners in Virginia who owe more than their homes are worth was 23.1 percent in March, CoreLogic reported.
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Across the country, the number fell slightly to 10.9 million, down from 11.1 million at the end of 2010, the firm reported. That represents about 22.7 percent of all residential properties with a mortgage nationwide. The highest concentration of underwater loans was in Nevada at 63 percent.

The Very Real Chance of Another Great Depression

An article in the New Republic has an unsettling analysis of why the USA could be heading towards another Great Depression - what's truly upsetting is that the main underlying cause should the worse case play out is that we NEVER learn from history. The article parallels the mistakes made in the 1930's with political/economic actions today and indicates we are making the same mistakes all over again. Leading the way in the march toward the potential fiasco, of course, is the GOP which never seems to want to avoid repeats of past disasters. A sure mark of insanity is doing the same thing and expecting a different result. Not that there is much doubt that the GOP is increasing controlled by the insane. Democrats, however, have no excuse for lacking the political will to speak out against such stupidity. Here are some article highlights:
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When the financial system was on the edge of melting down back in the fall of 2008, there was much talk in the punditocracy of a second Great Depression. The story was that we risked repeating the mistake at the onset of the first Great Depression . . . Instead, however, we acted, and these days the accepted wisdom is that the TARP and other special lending facilities created by the Federal Reserve Board prevented a similar collapse that saved us from a second Great Depression.
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But this view badly misunderstands the nature of the first Great Depression—and may, in fact, result in the country suffering the second Great Depression that the pundits claim we have averted.
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Allowing the cascade of financial collapses at the start of the first Great Depression was a mistake. However, there was nothing about this initial collapse that necessitated the decade of double-digit unemployment that was the central tragedy of the Great Depression. This was the result of the failure of the federal government to respond with sufficient vigor to mass unemployment. Indeed, the economy only broke out of the Depression when the federal government undertook massive deficit spending to fight World War II.
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Then, as now, politicians in Washington were obsessed with the budget deficit. They never would have countenanced such spending, apart from the threat to the nation posed by Hitler and the Axis powers.
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Unfortunately, the country seems destined to follow the same course in the current slump as it did in the 30s. The May jobs report should have provided the sort of stiff kick that is needed to revive discussion of additional stimulus. Instead, it seems to have barely shaken Washington’s ongoing obsession with deficits.
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In policy circles, there seems to be an absurd faith that demand in the economy will arise out of nowhere if we are just virtuous enough in reducing the deficit. That is not the way the economy works. Demand must come from some discrete source and it is very difficult to see where that might be if the country continues on a path of deficit reduction.
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To see why this is the case, first note that nearly 70 percent of demand in our economy is from consumption, but consumption has been growing slowly for two reasons. The first is that the economy has been creating few jobs. Furthermore, in a weak labor market workers do not have the bargaining power to push up their wages. The slow growth in jobs and stagnant wages mean that most families, who get nearly all their income from working, are seeing little growth in income. Slow growth in income means slow growth in consumption.
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The second factor depressing consumption has been the continuing deflation of the housing bubble. To date, the decline in house prices has destroyed nearly $7 trillion in housing equity. And prices are still falling. . . . The loss of this wealth will lead homeowners to cut back their consumption further in order to rebuild their savings.
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With these other sectors accounted for, this leaves the government as the only remaining candidate for boosting the economy. But additional stimulus is not even on the agenda in Washington. Instead, we are seeing cutbacks at all levels of government. These cutbacks led to a loss of 29,000 jobs in May. The pace of job loss is only likely to increase when states impose another round of cuts on July 1, the beginning of a new fiscal year for most of them.
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Moreover, there are more factors pointing to slower growth than faster growth going forward. In addition to the state and local cuts kicking in next month, the new fiscal year for the federal government begins October 1. This is also likely to involve further cuts in spending. And the payroll tax cut is scheduled to end 3 months later, as is the extension of unemployment benefits. At some point, the pain of high unemployment across the country may lead to some new thinking in Washington, but until that time, welcome to the second Great Depression.

As Housing Goes, So Goes the Economy

I have been saying since the summer of 2007 that unless and until something is done to stop the decline of the residential housing market, do not expect any significant improvement in the nation's economy. So what have we seen take place since then? Banks and mortgage companies bailed out yet no corresponding actions by the bailed out lenders to pass along anything to distressed homeowners. Instead, we've seen an unwillingness to modify loans to stem foreclosures and wave after wave of foreclosures that are driving home values ever lower and creating more homeowners who are upside down on their loans and headed towards foreclosure or bankruptcy. I truly do not understand why of political leaders cannot come up with something to stop the continued debacle. The New York Times today echos what Ive been saying. Here are some editorial highlights:
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The Great Recession began with the bursting of the housing bubble. Today, nearly two years after the recession officially ended, the housing market is still in trouble.
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[O]ver all, sales and construction have been flat for two years, while prices, driven down by foreclosures, are plumbing new depths. Even a recent drop in foreclosure filings isn’t a reason for optimism. . . . . the decline appears to be largely the result of banks slowing the foreclosure process in order to keep properties off the market until prices recover. The catch is that prices are unlikely to recover as long as millions of foreclosures are imminent.
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This isn’t just bad news for homeowners. Selling and building of houses are one of the economy’s most powerful engines. Until the market recovers, the entire recovery is imperiled. Falling home equity dents consumer confidence, making things even worse.
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Since the problems in housing are not self-curing, a government fix is in order. But the Obama administration’s main antiforeclosure effort has fallen far short of its goal to modify three million to four million troubled loans.
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Its basic flaw is that participation by the banks is voluntary. Most have joined the program but face no real pressure to meet its goals. Another big problem is that banks often do not own the troubled loans; rather, they service the loans for investors who own them. . . . Not surprisingly, defaults proceed and modifications lag. Banks win. Homeowners and investors lose. The economy suffers.
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That does not have to be the end of the story. In a recent hearing in a Senate banking subcommittee, witnesses proposed new laws and regulations to change loan-servicing standards in ways that would prevent banks from putting their interests above those of everyone else.
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For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.
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In the Senate, Democrats Jack Reed and Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio have introduced bills to establish standards. The new Consumer Financial Protection Bureau can also impose servicing rules. The Obama administration should champion national standards, and Congress and regulators should act — soon.

Obama's Popularity Surges in Virginia - At Least for Now

Voters can be fickle - especially Virginia voters based on a new polls - and have a "what have you done for me lately" mindset. A concept lost on the Democrats in 2009 and which helped saddle Virginia with the twin Christianists Bob "Taliban Bob" McDonnell and Ken "Kookinelli" Cuccinelli. At the time I blamed the debacle on national Democrats' failure to have delivered anything substantive - not that Creigh Deeds' lackluster campaign didn't work to make matters even worse. Now, in the wake of Obama's mission that took out Osama Bin Laden, it seems Virginian's are happy that Obama delivered something for them. The key, of course, is whether he can maintain the mindset all the way into 2012. Obviously, a lot can happen between now and the 2012 election and given Obama's general spinelessness, I'm not making any bets that he can maintain popularity. Here are highlights from the Washington Post on Obama's popularity surge in Virginia:
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The targeted killing of terrorist mastermind Osama bin Laden boosted President Obama’s prospects for reelection over several potential Republican challengers in the battleground state of Virginia, according to a Washington Post poll. The poll provides a view of the impact of bin Laden’s death in a state widely viewed as a bellwether for Obama’s chances for reelection nationally.
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Against all five potential GOP contenders tested in the poll, Obama stretched his margins after the death of bin Laden. In a hypothetical matchup against former Massachusetts governor Mitt Romney, for example, interviews before the bin Laden announcement showed voters splitting 48 percent for the president and 46 percent for Romney. Afterward, Obama edged ahead, 51 to 44 percent.
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Against former Alaska governor Sarah Palin and businessman Donald Trump, twin 19-point Obama advantages swelled to 31 points in interviews conducted in the three days after bin Laden’s death.
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Still, big vulnerabilities remain for the president, the first Democratic presidential nominee to win Virginia in more than 40 years. More than half of all Virginia voters are dissatisfied, even angry, with the Obama administration’s policies, and a vast majority retains a bleak view of the economy. Those opinions did not change with bin Laden’s death, leaving open the question of whether, or how long, the spike in Obama’s fortunes will last.
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A large contingent of the Obama coalition stayed home in 2010. Obama’s major challenge next year is bringing it out again — and holding it together. At this stage, with his bin Laden bump included, the president maintains much of the support he had 31 / 2 years ago. Fully two-thirds of voters younger than 30 approve of the job Obama is doing; in 2008, he won 60 percent of the state’s young voters.
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The economy is also seen as being in far worse shape. Nearly nine in 10 see the national economy as in “not so good” or “poor” shape, with the proportion saying poor more than doubling since 2007. Now, nearly three in 10 see themselves as “falling behind financially.”
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As I keep saying over and over again, until the housing market stabilizes and foreclosures and lender high handedness is reined in, it's foolish to think the economy will significantly improve. For the life of me, I don't know why the Congressional Democrats can't seem to figure that out.

Nutcase Linda Harvey: Gays Caused the Mortgage Crisis

Some days you have to wonder what drugs the wingnuts are ingesting and/or what kind of head trauma they've suffered because their attacks on LGBT Americans are just down right insane. A case in point is Linda Harvey who set up her own cottage industry called Mission America. I crossed paths with Ms. Harvey some years back and frankly asked her about her academic credentials and whether she had any legitimate expertise that would qualify her as an expert of social and/or cultural matters and so forth. In a snippy e-mail she disclosed her credentials: she holds a B.A/ in English and has worked in advertising. And, of course, Harvey has been active on the Christo-fascist speaker circuit. Nothing that would seem to make her an expert on homosexuality - a topic that is an obsession with her so-called ministry. Now, Ms. Harvey has posted a rant on her "ministry's" website that blames LGBT citizens and our determination to be equal under the civil laws for the economic recession and the mortgage/real estate meltdown. Here is a sampling of her verbal diarrhea:
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As some conservatives and even Christians rush to embrace the notion that two men or two women can be married, it’s important to remember one basic rule of construction. A weak foundation means a vulnerable, fragile structure.
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Families constructed around sexual deviance stand in defiance of God’s eternally –revealed truth. No matter how “conservatively” and faithfully two men or two women operate as they consider themselves a marital union, the structure is still in defiance of God’s created order of male and female as the framework for marriage. Men and women already have the right to marry, because they are free to marry someone of the opposite sex, so the goal is a new structure.
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So from the get-go, the same sex union is structurally unsound. Functionally, the intentions can be the best, but the homosexual humanists who have created their own law will live and die by it, because God has made His standard clear.
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No new life can ever come from a homosexual relationship. Those few who do desire children (a minority) always have to involve at least a third and possibly a fourth party. The options are adoption, artificial insemination, or inclusion of children from a previous marriage: yes, a heterosexual, fruitful one, back before the discovery of “inborn” homosexuality.
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Much discussion of public policy today advocates so-called “rights” for these sin-based families. They dream of marriage re-structured for everyone, including all our young, who will be taught to ignore basic instincts affirming workable structure and who must embrace the new man-made, sand-made design.
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Substance abuse and self-destruction accompany sexual deviance. And some of this means poor decisions about finances.
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The mortgage crisis was the sin of temptation being offered by those who relaxed legitimate standards, offered to those without the personal standards to resist. This easy-pay physical structure was too good to be true, and appealed to an increasingly covetous segment of our culture. Sexual and material covetousness are usually sin siblings. It would be interesting to study the families who have defaulted on mortgages for the correlations between structural and/or functional weaknesses like infidelity, divorce, gambling or porn addictions, job instability, credit card default, domestic abuse, sexual deviance, and criminality. There is also a high likelihood that poor or no church attendance would show up as a factor as well.
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Personally, I think Ms. Harvey needs serious mental health intervention. She obviously is detached from legitimate medical and mental health knowledge based on her totally repudiated views on gays and sexual orientation.

A Reminder: Obama Could Easily Lose in 2012

At the moment, given - to use Pam Spaulding's term - the clown car line up of would be GOP presidential contenders, many may be over confident in believing Barack Obama is a shoe in for re-election next year. While Obama has done far more positive and progressive things than would have come to be under a McCain/Palin administration, time and time again he has shown himself to be spineless and unwilling to be a leader. As we move towards 2012, the economy is still in full depression mode for many Americans and seemingly nothing is being done to stabilize the residential housing market - the key, in my view, of having a real economic recovery - or to coerce banks into lending again to small businesses. Far too many business owners that I know are still struggling, have reduced staff, and are putting off capital investments and find themselves self-financing from cash flow. A timely piece in Salon looks at Obama's vulnerability that needs to be taken seriously both by progressive voters and Obama himself. It is foolish to simply assume that the GOP opponent will be some utterly unelectable whack job. Here are some highlights:
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Conventional wisdom has held for several month that President Obama is in reasonably good shape to win reelection in 2012. But a new poll provides a helpful reminder of the degree to which Americans are gripped by economic anxiety -- something that always has a corrosive effect on the standing of an incumbent president.
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Specifically, the survey from ABC News and the Washington Post finds puts Obama's approval rating at 47 percent, with 50 percent of voters expressing disapproval. That's a drop of four points in Obama's approval rating from the same ABC/WaPo poll last month and seven points from January.
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But even if the "decline" in Obama's numbers is an illusion, the fact is that his approval rating is pretty much exactly where it should be. The unemployment rate has dipped slightly for the past few months, but at 8.8 percent, it remains perilously high as far as Obama's reelection prospects are concerned. Moreover, the painfully sluggish pace of the recovery seems to be sapping Americans of any optimism; in the ABC/WaPo poll, 44 percent say they economy is getting worse -- the highest that number has been since early 2009.
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This underscores a basic point that can't be made enough: Under economic conditions like those that now exist, Obama is likely to be defeated in 2012.
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The unusual weakness of the GOP field, we keep hearing, is Obama's ace-in-the-hole -- his way of surviving November'12 even if the economy remains rotten. There are two problems with this thinking. One is that it means little for an incumbent president to enjoy early leads over his possible general election opponents, even when the economy is struggling. . . . Rest assured, if the economy doesn't improve -- or gets worse -- the GOP will be well-positioned to oust Obama in 2012, provided the party doesn't nominate a fringe candidate.
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[T]he conservative establishment is very focused on not fielding an unelectable candidate next year. This (partly) why so many influential conservative voices have spoken up in an effort to marginalize Donald Trump in the last week. Eric Cantor, Charles Krauthammer, George Will, Stephen Hayes, Rich Lowry and Karl Rove -- to name a few -- have all dismissed or disparaged Trump recently. It is not a coincidence that they began speaking up only when Trump surged to the top of GOP polls and began looking (to some) like he might actually run for president. They understand the short- and long-term threat that Trump and his birtherism pose to their party

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In other words, it still seems likely -- for all of the zaniness in the air -- that the GOP will end up nominating a candidate like Romney or Pawlenty next year, someone generic enough to take advantage of a lousy economy (if the economy remains lousy).
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Obama needs to solidify his base and begin to seriously act like a leader. In addition, he HAS to appear to be doing something concrete to fix the housing debacle and the cash hoarding of big business and banks.

Are the Federal Government and Lenders Out to Destroy Housing?

The Virginian Pilot is reporting that in March 43% of home sales were foreclosures. This reality has several negative side effects: (1) neighborhood values are driven lower thus causing more homeowners to be "underwater" on the mortgages and (2) the bailout tab to the taxpayers increases. Yet these effects would seem to be the agenda of the federal government and the lenders as a whole. Why do I say this? Because lenders continue to refuse to enter into loan modifications to assist owners faced with plummeting prices and/or financial catastrophes that have impacted their ability to pay on loans. This refusal ultimately leads to a foreclosures sale where huge numbers of homes are taken back by lenders because no one buys the home at foreclosure. The next step is to have the foreclosed homes under the management of incompetent "management companies" where they languish until the home is transferred to HUD, Fannie Mae or Freddie Mac. Once the homes become the property of these government or semi-governmental agencies, they typically sell for 40-50% of their former value. One doesn't need to be a math genius to realize how devastating this is to neighborhood values. The best solution for troubled homeowners and the taxpayer would be for loan modifications to be widely utilized. The fact that they are not shows just how f*cked up the system has become. Here are some story highlights:
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Sales of foreclosed and distressed properties continued to fuel the housing market in South Hampton Roads in March, according to a report released Monday. Real Estate Information Network Inc. reported that 1,090 homes sold last month in the area, up 56.4 percent from February and 13.2 percent from a year ago. Three of every seven homes sold - or 43 percent - were bank-owned or were sold for less than the seller owed on the mortgage.
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That is the highest volume of foreclosures sales on record, up from 42 percent in February.

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As such sales increase, housing prices continue to fall. Last month, the median price of homes sold dipped to $175,000, down 5.4 percent from February and 15 percent from a year ago, the Virginia Beach-based multiple listing service reported.

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Vinod Agarwal, an economist at Old Dominion University, said that although foreclosures make up a small percentage of the housing market, they are selling fast because of the perceived value. "If you think you're getting a steal, you go for it," Agarwal said.

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Despite foreclosure sales, the market as a whole is still swollen with properties. Last month, 14,360 were for sale in Hampton Roads, up 1.3 percent from February and down 3.4 percent from a year ago. That represents about 10 months of inventory. Six months of inventory is considered normal.

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It's also taking longer to sell a home, on average. The average number of days a home stays on the market rose slightly in March to 107 days. That is the lengthiest average market time in more than four years.

More Bad News For Housing

Although many continue to hope that the economy is beginning to turn around, the news on the residential housing front suggests otherwise. Sales are at a 9 year low and foreclosures continue to drive prices downward and encourage the timid to wait out the market to see how low it will go. Savvy investors are picking up incredible deals as the banks holding bank owned property prove to be as incompetent in post foreclosure matters as they were in making loans to the unqualified in the bubble days of the market. Until housing recovers, there will be no real economic recovery. Sadly, as is the case with the long term unemployed, neither the White House or Congress seems to care. Here are highlights from Financial Feed:
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February sales and prices of formerly owned U.S. homes plunged 9.6% monthly with 4.88 million units at an annual rate, the lowest in 9 years, said the National Association of Realtors. The decline was the largest since July and an indication that recovery for the housing market is still unlikely. IHS Global Insight senior economist Chris Christopher said it is still a very depressed housing market.
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Additionally, tight credit conditions and home appraisals that did not meet agreed selling prices affected sales said NAR. Excess homes and too many foreclosures hamper recovery in the housing industry which helped bring the U.S. economy towards the worst slump since the 1930’s.
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The below-market value foreclosure and short sales represent 39% of February dealings from last month’s 37%. Cash purchases on the other hand made up a record 33% of February sales. NAR said new home prices are 45% more expensive that existing home prices.

A Last Chance to Stabilize the Housing Market?

Back in the summer of 2007 I began writing about the coming recession/depression that was being triggered by the collapse of the residential housing market. Alas, no one in Washington, D.C., seems to have paid any attention to the looming fiasco. The rest is history and the housing market - and the larger economy - have never recovered from the missed opportunity to create a real solution to the still unfolding problem. For anyone trying to assist distressed homeowners, the process is beyond maddening and despite alleged programs for methods to assist homeowners who have lost jobs or find themselves upside down on their mortgages because of collapsed home prices, typically NOTHING is done and the homes end up in foreclosure. Which only serves to drive prices lower still and add to the number of homes facing foreclosure. Here in the Hampton Roads area, 24% of mortgages are said to be upside down. Now, as Ezra Klein at the Washington Post is reporting there may be a last chance for a meaningful fix to the problem. Personally, I am not holding my breath. Here are highlights (the referenced draft settlement can be found here):
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My colleagues Brady Dennis and Dina El Boghdady got their hands on an early version of the settlement that the country's attorney generals and a few federal agencies are hammering out with the big banks. This is the endgame to the mortgage servicing mess that dominated the news some months ago: the banks, having repeatedly broken the law while handling mortgage paperwork and conducting foreclosures, need to strike some sort of deal with regulatory authorities so they're not nipped to death by thousands and thousands of lawsuits. That means the state AGs and regulators have some leverage: the banks need relief from them, and so the question is how much relief they can get for homeowners in turn.
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The hope is that they can get something capable of stabilizing the housing market. For all that the economy is improving, housing remains a huge drag, with legitimate estimates suggesting we've still got as many as 11 million foreclosures in the pipeline. "The number one reason for nervousness about the economy in the next six to nine months is the foreclosure crisis," Moody's economist Mark Zandi told me last week.
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With Congress no longer interested in acting to ease the foreclosure crisis -- or, it seems, the jobs crisis -- this settlement is perhaps our last shot at stabilizing the housing market. The big thing that advocates are looking for is "principal modification": a process in which borrowers who are underwater on their homes would see the amount they owe to the bank reduced.
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The proposals attempt to address wide-ranging complaints about the servicing process. One would require the servicers to provide a single point of contact for borrowers looking to modify their loans. Another would require them to develop a portal that would allow borrowers to submit and track documents electronically in real time.The document also spells out the conditions under which servicers should consider principal reductions for certain borrowers.
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Currently, if one contacts a lender, expect to be transferred countless times, be told to call other telephone numbers, and after hours of effort to have achieved absolutely nothing. It is a disaster and economically, we are all paying the price. Well, most of us - obviously, not the top income brackets which are getting richer while the rest of us stagnate or lose income.