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Rant & Rave Blog

So Many Foreclosures, So Little Logic

Posted by InTheMoneyStocks.com Saturday, July 04, 2009, 08:00PM ET

Read 235 times

So Many Foreclosures, So Little LogicLAST week, the stock market tumbled on news that housing foreclosures and delinquencies rose again in the first quarter. The Office of the Comptroller of the Currency said that among the 34 million loans it tracks, foreclosures in progress rose 22 percent, to 844,389. That figure was 73 percent higher than in the same period last year.

But the comptroller’s office also said that amid the gloom, there was promising data about loan modifications: they rose 55 percent in the quarter. That growth came on a very low base, of course, but the move encouraged John C. Dugan, head of the comptroller’s office.

“As the administration’s ‘Making Home Affordable’ program gains traction and helps offset the impact of this very difficult economic cycle,” he said in a statement, “we should continue to see progress in future reports.”

A glimpse of second-quarter mortgage data, however, indicates that the progress Mr. Dugan and his colleagues in Washington are hoping for may take longer to emerge — raising questions about whether policymakers and banks are moving quickly or intelligently enough on the foreclosure problem.

Foreclosures remain one of the great financial ills for the economy. The Bush administration largely overlooked foreclosures affecting average homeowners, focusing instead on propping up elite, troubled financial institutions with taxpayer funds. The Obama administration has said it wants to wrestle the foreclosure issue to the ground by encouraging mortgage loan modifications, but its efforts have gotten little traction.

Loan modifications occur when a lender agrees to change terms of a troubled borrower’s mortgage; the most common approach is to reduce the loan’s interest rate. Cutting the amount of principal owed — an option that could be of more help to a borrower — is rare because it means homeowners pay less money back to the bank over time.

Lenders and their representatives, however, don’t like to modify loans through interest rate cuts or principal reductions because, of course, it reduces the income they receive from borrowers. No surprise, then, that loan modifications have been a trickle amid the recent foreclosure flood.

Enter the government, with the program it announced in March to encourage modifications. It offers incentives to loan servicers to change mortgage terms, providing $1,000 for each loan they modify. The program focuses on making payments more affordable through lower interest rates, but delinquent amounts and late fees are typically tacked onto the mortgage balance. “Making Home Affordable” does not compel lenders to reduce mortgage balances.

Servicers signed on to the program in April. The program’s early months were not covered by the O.C.C.’s first-quarter report. But other figures on modifications conducted in April, May and June are available. And they show a decline in modifications, not an increase as the government hoped.

Alan M. White, an assistant professor at the Valparaiso University law school in Indiana, analyzed data on 3.5 million subprime and alt-A mortgages in securitization pools overseen by Wells Fargo. The loans were written in 2005 through 2007; data on their performance is provided to the trusts’ investors. Mortgages handled by five of the nation’s largest loan servicing companies — Bank of America, Chase Home Finance and Litton Loan Servicing among them — are contained in the Wells Fargo data.

Mr. White found that mortgage modifications peaked in February and have declined in all but one month since. While servicers modified 23,749 loans in these trusts in February, they changed only 19,041 in May and 18,179 in June. This is exactly when servicers were supposed to be responding to the government’s loan modification urgings.

Foreclosures, meanwhile, keep rising. In June, 281,560 were in process, slightly above the 277,847 in May. Last January, there were about 242,000 foreclosures in the pipeline among the Wells Fargo trusts.

“I was hoping we would see some impact in June of the government’s program,” Mr. White said. “Is ‘Home Affordable’ working? My short answer is no.”

To be sure, the government’s data differs from that which Mr. White analyzed, and its loan modification figures for the second quarter may look better as a result. The O.C.C. includes prime loans as well as subprime, for example, while the Wells Fargo data contains no prime loans.

Nevertheless, Mr. White has collected the figures since November 2008, and he said that in the months since, the performance of the 3.5 million mortgages that he analyzes tracked the O.C.C. data pretty closely.

THE Wells Fargo data is illuminating. It shows that in June, 58 percent of modifications cut the payments that the borrower has to pay, a slightly smaller percentage than in April or May. The average reduction in June was $173 a month.

But the most fascinating, and frightening, figures in the data detail how much money is lost when foreclosed homes are sold. In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance.

Here are the numbers: the average loan balance began at almost $223,000. But in the liquidation sale, the property sold for $144,000 less, on average. Perhaps no other single figure shows how wildly the mortgage mania pumped up home prices. It also bodes poorly for the quality of the mortgage-related assets lurking in banks’ books.

Loss severities, like foreclosures, are rising. In November, losses averaged 56.1 percent of the original loan balance; in February, 63.3 percent.

Given losses like these, Mr. White said he was perplexed that lenders and their representatives were resisting reducing principal when they modify loans. His data shows how rare it is for lenders to reduce principal. In June, for example, 3,135 loans — just 17.2 percent of the total modified — involved write-downs of principal, interest or fees. The total loss from these write-downs was just $45 million in June.

And yet, the losses incurred in foreclosure sales involving loans in the securitization trusts were a staggering $4.59 billion in June. “There is 100 times as much money lost in foreclosure sales as there was in writing down balances in modifications,” Mr. White said. “That is not rational economic behavior.”

If banks have written down the value of these loans to the 40 cents on the dollar that they are fetching on foreclosures — the only true value for these homes right now — then why don’t they bite the bullet and reduce the loan amount outstanding for the troubled borrowers? That type of modification would be far more likely to succeed than larding a borrower who is hopelessly underwater with yet more arrears.

“You can reduce payments with a lot of gimmicks similar to those built into subprime loans — temporary rate reductions that defer a lot of principal, balloon payments,” Mr. White said. “To me that leads to a situation where American homeowners are paying 50 to 60 percent of their incomes for mortgages which reset in 2011 and 2012. That is not solving the problem.”

Certainly not for borrowers, that is. And because many of these losses will ultimately be passed on to taxpayers, it’s not solving our problem, either.

http://www.nytimes.com/2009/07/05/business/05gret.html?pagewanted=1&_r=1&ref=business
HIDDEN GEMS!! $$$

Posted by InTheMoneyStocks.com Saturday, July 04, 2009, 08:00PM ET

Read 195 times

HIDDEN GEMS!! $$$


 
Biden: 'We Misread How Bad the Economy Was'

Posted by InTheMoneyStocks.com Saturday, July 04, 2009, 08:00PM ET

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Biden: 'We Misread How Bad the Economy Was'"The vice president says the Obama administration "misread how bad the economy was" but stands by its stimulus package and believes the plan will create more jobs as the pace of its spending gains momentum. "


The Obama administration "misread" the depth of the economic troubles it inherited and still expects more new jobs in the long term as the spending pace from the $787 billion stimulus plan quickens, Vice President Joe Biden said.

Republican congressional leaders expressed disappointment about the impact of stimulus spending. "I'm very skeptical that the spending binge that we're on is going to produce much good and, even if it does, anytime soon," Senate Republican leader Mitch McConnell of Kentucky said in a statement Sunday.

"I think the economy is just as likely to begin to recover on its own, wholly aside from this, before much of this has an impact."

Biden, in an interview that aired on ABC's "This Week," said the 9.5 percent unemployment rate is "much too high." The administration had predicted unemployment would stay below 8 percent with its stimulus plan.

"The figures we worked off of in January were the consensus figures and most of the blue chip indexes out there," Biden said. "We misread how bad the economy was, but we are now only about 120 days into the recovery package."

He cited the economic conditions inherited from the Bush administration. "It's now our responsibility. So the second question becomes ... is it the right package given the circumstances we're in? And we believe it is the right package given the circumstances we're in."

While Biden argued that more jobs will be created in the coming months, House Republican leader John Boehner of Ohio said the GOP had wanted the bill to focus on small businesses and helping people keep more of what they earned.

"This was supposed to be about jobs, jobs and jobs. And the fact is it turned into nothing more than spending, spending and more spending on a lot of big government bureaucracy," Boehner said.

Even House Majority Leader Steny Hoyer, D-Md., said no one is satisfied with the results of the stimulus so far. "But we believe the stimulus was absolutely essential," he said.

Biden noted that the plan was set up to spend the money over 18 months. Major programs will take effect in September, including $7.5 billion for broadband Internet service, plus new money for high-speed rail and the nation's electrical grid, he said.

Biden said it's premature to say whether the country will need a second stimulus package.

Other issues Biden discussed during his ABC interview:

--Asked whether the United States would put the lives of U.S. troops on the line should violence flare up again in Iraq, he said "no." The U.S. still plans to withdraw all troops by 2011, Biden said. "We believe the Iraqis will be fully capable of maintaining their own security."

--Biden said if the Iranian government seeks to engage in a dialogue with the United States, the U.S. will engage. "The offer's on the table."

--Biden said Israel has the right to pursue a different course of action on Iran than the U.S. does. "Look, Israel can determine for itself -- it's a sovereign nation -- what's in their interest and what they decide to do relative to Iran and anyone else."

--On North Korea's Saturday launch of missiles, he said such actions appear to be efforts to seek attention. "The question is, is there anything that we should do about it?" Arguing that the U.S. policy has been correct so far, he said, "We have succeeded in uniting the most important and critical countries to North Korea on a common path of further isolating North Korea."

--The Obama administration is "well on the way" to resolving a dispute between CIA Director Leon Panetta and National Intelligence Director Dennis Blair, Biden said. The conflict centers on Blair's effort to choose his own representatives at U.S. embassies instead of relying only on CIA station chiefs. "He declined to give details.

The Associated Press. All Rights Reserved.
Sunday, July 05, 2009
http://abcnews.go.com/Video/playerIndex?id=8004847
InTheMoneyStocks.com Continues To Be Dead Right On Economy And Lack Of Recovery

Posted by InTheMoneyStocks.com Saturday, July 04, 2009, 08:00PM ET

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InTheMoneyStocks.com Continues To Be Dead Right On Economy And Lack Of RecoveryBelow you will see comments from the Vice President of the United States. He talks about how they underestimated and were wrong on the severe nature of the economic collapse. Even of late, jobs numbers show continued declines, housing prices showing no sign of recovery or even stabilization. While the President and his economic team continue to be way off...InTheMoneyStocks.com continues to nail it head on. Just like the infamous call in 2007 of the impending financial collapse and economic pearl harbor, they continue to nail the severity of what is occurring. Even over the last month, InTheMoneyStocks.com has said there is no recovery in sight while the President, Treasury and Federal Reserve has been claiming the recovery has started. Finally, the jobs numbers and other recent economic news confirms that InTheMoneyStocks.com has been and continues to be correct. We encourage everyone to come join the Research Center so you can get the true analysis and guidance while being fully educated on the economy and markets. The Research Center contains Daily Technical Analysis Videos of 30+ minutes in length, Daily Market Reports with key levels on everything from the S&P 500, oil, gold and more, Pro Trader Watch List with bearish and bullish calls on stocks and ETF's, Hidden Gems picks and the new Hot Charts and Alerts which is geared towards the swing trader and long term investor. The Chief Market Strategists isolate charts on a daily, weekly, monthly time frame which are showing major signs of overbought or oversold. The Research Center is for the Long Term Investor, Swing Trader and Day Trader.  It will make you the complete player when it comes to understanding and being ready to take on the markets while avoiding the Wall Street hype!
Weekend Technical Guidance - Jobs Data Confirms InTheMoneyStocks.com's Call Of No Recovery Yet!

Posted by InTheMoneyStocks.com Thursday, July 02, 2009, 08:00PM ET

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Weekend Technical Guidance - Jobs Data Confirms InTheMoneyStocks.com's Call Of No Recovery Yet!

RealTick graphics used with permission of Townsend Analytics, Ltd. ©1986-2009 townsend Analytics, Ltd. All Rights Reserved. RealTick is a registered trademark of Townsend Analytics, Ltd
Futures Point To Lower Open

Posted by InTheMoneyStocks.com Wednesday, July 01, 2009, 08:00PM ET

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Futures Point To Lower OpenU.S. stock futures are pointing to a lower open heading into the long weekend. All eyes will be on payroll numbers due out at 8:30 this morning. Analysts are expecting 325,000 job losses in June. The unemployment rate is expected to rise to 9.6% in June from 9.4% the prior month.
ECB Keeps Rates At 1%

Posted by InTheMoneyStocks.com Wednesday, July 01, 2009, 08:00PM ET

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ECB Keeps Rates At 1%The European Central Bank kept euro zone interest rates at 1.0 percent and the markets expect it to hold them at the all time low for much of next year to help repair the region's economy.
U.S. Payrolls Down 467,000 In June

Posted by InTheMoneyStocks.com Wednesday, July 01, 2009, 08:00PM ET

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U.S. Payrolls Down 467,000 In JuneWorkers lost jobs at a faster pace in June than in the prior month. Nonfarm payrolls shrank by 467,000 in June. Analysts had expected a loss of 325,000. The unemployment rate rose to 9.5% in June up from 9.4% the previous month.
Futures Dump Hard On Unemployment And Jobs Data

Posted by InTheMoneyStocks.com Wednesday, July 01, 2009, 08:00PM ET

Read 203 times

Futures Dump Hard On Unemployment And Jobs DataChief Market Stategists were dead on in regards to the reasons the jobs numbers were put the day before instead of the normal week after.  Usually, when the Friday the jobs numbers are supposed to come out is closed due to a holiday, the data is pushed to the following week because there will be more volume and traders trading it.  However, this week it was pushed to the day before to slip it in on light volume.  The Chief Market Strategists read this perfectly, saying it would be a worse number than expected.  This was slipped in to make sure the markets did not dump too hard as light volume propping can be done.  Sure enough, futures are down nicely on the jobs number.  Watch for light volume late day propping today.  Very possible to see the markets off their lows by that point.


RealTick graphics used with permission of Townsend Analytics, Ltd. ©1986-2009 townsend Analytics, Ltd. All Rights Reserved. RealTick is a registered trademark of Townsend Analytics, Ltd
Gold Falls On Stronger Dollar

Posted by InTheMoneyStocks.com Wednesday, July 01, 2009, 08:00PM ET

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Gold Falls On Stronger DollarGold futures fell Thursday, moving below $930 an ounce as the U.S dollar strengthened against most of its rivals after a bad jobs report. August gold was down $13.50 to $927.80 an ounce.
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