Saturday, December 1, 2007

Housing, Mortgages, ARM resets, The Economy, Why no one knows!

Nov. 30 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks to stem a surge in foreclosures by fixing interest rates on loans to subprime borrowers.

Paulson was joined yesterday by Federal Deposit Insurance Corp. Chairman Sheila Bair, Comptroller of the Currency John Dugan and Office of Thrift Supervision Director John Reich.

Bair has proposed letting borrowers with adjustable-rate subprime mortgages, who are living in their homes and unable to afford resets, get extensions on the starter rate for at least five years. They could also be offered 30-year fixed-rate loans. Reich prefers a three-year freeze.

"The objective of modifications should be to make homeownership sustainable, rather than deferring foreclosure to a later date," wrote Dodd, a Connecticut Democrat who is seeking his party's presidential nomination.

Subprime loans, given to people with poor or incomplete credit histories, typically offer a low introductory rate for the first two or three years. The rate then resets for the duration of the mortgage. About 100,000 subprime loans will reset to higher rates each month over the next two years.

Paulson said in an interview with Business Week three days ago that ``well before the end of the year, we will have a template and the infrastructure in place to make it easier to handle the wave'' of mortgage resets.

The rout will get worse because defaults on home loans are likely to rise, analysts said. The FDIC estimates that 1.54 million non-prime mortgages valued at $331 billion will reset by the end of next year.

Paulson may be trying the same approach he took with Citigroup, JPMorgan Chase & Co. and Bank of America Corp. in September to address structured investment vehicles, units set up by banks to finance purchases of assets such as corporate bonds and mortgage securities, Abernathy said. Treasury encouraged the banks to set up a fund that will buy assets from the SIVs, without committing any government money.

Regulators still lack reliable estimates on the extent of the subprime mortgage crisis. Three months after they asked banks to modify loans for borrowers at risk of default, agencies have little comprehensive data on what lenders and loan servicers have done, officials say.

Mortgage-industry lobbyists have argued that an across-the- board solution is difficult to apply. Rewriting contracts also risks moral hazard -- encouraging borrowers to take on more debt in the expectation of being bailed out if needed later. - Bloomberg

One of the arguments against Agricultural Subsidies is... it allows people who have made poor financial decisions to operate in a "Market Based Economy" - not to fail. We are again providing this vehicle to sub-prime mortgagees. whether it be business failure or personal financial failure - it becomes enormously painful to those who have to endure it. These subsidies are not there to protect the individual - they are there to protect the businesses who have provided the money (loans, etc.) The Consumer is the Pawn - Business is the King. Vis...Savings and Loan Bail Out....Long Term Capital Management Bail out. Etc...Iraq War -Business Enrichment.

"In the room the women come and go
Talking of Michelangelo.

And indeed there will be time
To wonder, "Do I dare?" and, "Do I dare?"
Time to turn back and descend the stair,
With a bald spot in the middle of my hair --
(They will say: 'How his hair is growing thin!")
My morning coat, my collar mounting firmly to the chin,
My necktie rich and modest, but asserted by a simple pin --
(They will say: "But how his arms and legs are thin!")
Do I dare
Disturb the universe?
In a minute there is time
For decisions and revisions which a minute will reverse." ........... -The Love Song of J. Alfred Profrock - T.S. Elliot

Here's Fortune's forecast for the value of an upscale home (one that sells for double the local median price) in five years.
House prices (thousands)
Metro area June 2007 Five-year projection
San Francisco $1,732 $1,568
San Jose $1,669 $1,419
Honolulu $1,314 $1,204
Orange County, Calif. $1,419 $1,104
East Bay, Calif. $1,562 $1,078
Stamford, Conn. $988 $968
New York $1,100 $950
San Diego $1,211 $926
Los Angeles $1,107 $841
Boston $834 $793
Long Island, N.Y. $947 $725
Seattle $854 $687
Inland Empire, Calif. $791 $667
Greater Washington, D.C. $856 $641
Palm Beach County, Fla. $760 $553
Chicago $574 $550
Fort Lauderdale $731 $532
Sacramento $705 $521
Miami $759 $514
North/Central N.J. $607 $512
Portland, Ore. $589 $476
Denver $502 $474
Las Vegas $611 $450
Minneapolis $448 $434
Hartford $484 $433
Baltimore $565 $408
Phoenix $521 $399
Norfolk $500 $387
Raleigh $447 $381
Milwaukee $445 $377
Philadelphia $472 $370
Salt Lake City $464 $360
Richmond $462 $359
Austin $363 $347
Orlando $522 $343
Nashville $367 $342
Dallas/Fort Worth $329 $334
New Orleans $328 $321
Tampa $444 $320
Greater Kansas City $309 $314
Charlotte $406 $313
Houston $304 $308
Atlanta $349 $305
Cincinnati $284 $301
Jacksonville $393 $299
Columbus $296 $295
St. Louis $304 $295
Cleveland $249 $273
Memphis $283 $269
Indianapolis $244 $262
San Antonio $302 $262
Oklahoma City $256 $240
Pittsburgh $237 $232
Detroit $201 $215

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