The housing riot: Average time in mortgage delinquency is 2.7 years nationwide, 4 years in New York State

Lawlessness and mayhem isn't just for po folk in Ferguson, Missouri, where law enforcement was overwhelmed by the bad actors doing millions of dollars in damage on the streets. Same goes for freeloaders in judicial mortgage states like New York where the authorities do not have the capacity to deal with the widespread problem of non-payment.

From Michael Sincere, here:

Millions of homeowners are already seriously delinquent. “The average length of time that houses remain delinquent nationwide is 995 days,” [Keith] Jurow says. “The worst culprit is New York State. The average delinquency period there is four years.” Many homeowners are aware that banks are not in a rush to file foreclosures, so they stay in their houses mortgage-free. “The banks are not initiating foreclosure proceedings because once the servicer forecloses, the lender takes a hit on earnings,” Jurow says. “They also have to manage the property, and most banks don’t want to do that.”

Federal Reserve banks rob the people a minimum $400 billion annually through ZIRP, so far have paid just $125 billion in fines for financial crisis crimes

Bank of America is a chief offender appearing in the lists. The latest fine against it, among others, is detailed here:

"The Bank of America deal announced Thursday, the government’s largest-ever settlement with a single company, means the nation’s second-biggest bank will shell out $16.65 billion over allegations that it knowingly sold toxic mortgages to investors. ... The sum surpasses Bank of America’s entire profits last year and is significantly higher than the $13 billion it offered during negotiations in July."

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The story doesn't mention the nearly $90 billion paid out by the FDIC Deposit Insurance Fund for the failed banks which have numbered over 500 since 2007, the funds for which are supplied by insurance premiums extorted from the honest banks. But it is the depositors who end up paying for that cost of doing business in the end. Nor does it ruminate on the effects of the Federal Reserve's Zero Interest Rate Policy, which allows those first in line for money to get it rock bottom cheap and speculate with it. The financial sector now rivals the household sector in stock ownership. Savers meanwhile get the crumbs which fall from their masters' table. Ten years prior to 2007 the country was finally beginning to recover from a decade long Savings and Loan crisis which witnessed over a thousand institutions fail, costing the taxpayers directly about $130 billion. No sooner was that over in 1995 when the wizards of smart conspired to abolish the Glass-Steagall banking regime in 1999, precipitating the recent panic less than a decade later. And, of course, the Great Depression after 1929 followed closely on the heels of the establishment of the Federal Reserve itself in 1913, signed into law by one Woodrow Wilson, Ph.D., Johns Hopkins University. Over 700 banks failed in 1930, and 9,000 over the ensuing decade. The professionals have a long history of failure. The prudent avoid them.

Completed foreclosure activity in May 2014 still 2.2 times above pre-2007 levels

CoreLogic reports here:

According to CoreLogic, for the month of May 2014, there were 47,000 completed foreclosures nationally, down from 52,000 in May 2013, a year-over-year decrease of 9.4 percent. On a month-over-month basis, completed foreclosures were up by 3.8 percent from the 45,000 reported in April 2014. As a basis of comparison, before the decline in the housing market in 2007, completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006. ... The five states with the highest foreclosure inventory as a percentage of all mortgaged homes were: New Jersey (5.8 percent), Florida (5.2 percent), New York (4.3 percent), Hawaii (3.1 percent) and Maine (2.8 percent).

Zillow says 10 million mortgages remain underwater concentrated among homes worth less than $100,000

CNBC's Diana Olick reports here:

Nearly 10 million borrowers still owe more on mortgages than their homes are currently worth, according to Zillow. That has kept them stuck in place. ... affordable homes are still drowning disproportionately. They are three times more likely to be underwater than expensive homes, according to Zillow. Thirty percent of mortgaged homes in the bottom price tier ($98,400 and below) are in negative equity, compared with 18 percent in middle tier ($90,400 to $306,700) and 10.7 percent in top tier ($306,700-plus).

Jim Cramer reads fellow Democrat Tim Geithner and suddenly discovers frugality: both men are only five years behind the curve

THE MARKET IS UP 11% SINCE CRAMER SAID SELL IN SEPTEMBER 2013

Jim Cramer, quoted here:

"I think America's gone frugal. Just like our parents, or grandparents, or even great-grandparents changed their patterns of behavior somewhat radically after the Great Depression, I'm thinking we've changed ours, too."

Here's a newsflash for you Jim: America went frugal already more than five years ago. Why do you think things are the way they are?

See Mish's "The Age of Frugality" here, from October 19, 2008, which noted that frugality had finally (!) made the cover of a magazine after he'd been talking about it since at least March:

"Frugality has finally made front page. BusinessWeek is commenting on The New Age of Frugality."

Cramer thinks there's a new opportunity in the "new" frugality. Remember, this is coming from the same guy who told you in October 2008 to get out of the market if you needed your money in the next five years. If you took his advice, you missed one of the most incredible bull markets in the history of investing. Unfortunately, being five years behind Jim doesn't realize we've already reaped the opportunity of the new frugality.

The future?

I'm still with Chris Whalen and Ambrose Evans-Pritchard: DECADES of economic shrinkage ahead. We've already enjoyed the prosperity which the debt we racked up provided. Civilizationally speaking: It's time to pay for all that.

Sorry old boy.

Unnumber'd Maladies each Joint invade,

Lay Siege to Life and press the dire Blockade;

But unextinguish'd Av'rice still remains,

And dreaded Losses aggravate his Pains;

He turns, with anxious Heart and cripled Hands,

His Bonds of Debt, and Mortgages of Lands;

Or views his Coffers with suspicious Eyes,

Unlocks his Gold, and counts it till he dies.

-- Samuel Johnson, 1749

FiveThirtyEight Economists Assert But Don't Demonstrate Distributional Characteristics Of Great Recession Spending Pullback

I refer to "Why the Housing Bubble Tanked the Economy And the Tech Bubble Didn’t" by AMIR SUFI and ATIF MIAN, here, where they basically blame the spending pullback of the Great Recession on the poorest, most indebted homeowners:

"The poor cut spending much more for the same dollar decline in wealth. This fact is one of the most robust findings in all of macroeconomics, ... It also makes intuitive sense."

Their forthcoming book may show this, but this article surely doesn't.

They present data which tell us about homeowners' housing as a share of their net worth by quintiles, their mortgages as a share of their home values by quintiles, and about the net worth of richest and poorest homeowners. These are useful distributional observations which, unfortunately, in the case of spending are missing in the presentation! You'd think they would be present in a story which attacks traditional economists like Ben Bernanke for ignoring distributional data sets. Ah, yeah.

Apart from whether showing the distributional characteristics of the spending pullback is even possible, I wonder if it makes any sense that the poorest homeowners could cut their spending enough to account for the sums involved, which is what traditional economists wonder. Weren't they the ones primarily represented in the 5.6 million who lost their homes to foreclosure in the first place?

Using November 2007 real retail and food service sales as the baseline ($179.37 billion), the cumulative month to month shortfall from that to November 2012 came to $663.09 billion. Yes, it took five full years for real retail to recover. But the peak to trough decline in real GDP from 4Q2007 to 2Q2009 alone, on the other hand, was $639.2 billion, not even half way through the great retail depression. Retail spending shows only part of the picture.

Which is why it's wrong to imply, as the authors do, that the decline in spending, supposedly linked to the poorest homeowners, explains the Great Recession. It only explains about a third of it, but just how much of that can be blamed on the poorest homeowners remains a mystery.

Nothing Else Is Working, So The US Federal Reserve Should Be QEing Gold Instead Of Treasuries

So said Christopher T. Mahoney, a former Vice Chairman at Moody's, for Project-Syndicate last June, here, just not in so many words:

It may be that when rates are at the zero bound and the banking system is broken, the appropriate policy instrument may not be to buy bonds from banks, since buying them doesn’t seem to affect the price level. Bernanke was certainly correct that the Fed could create inflation by dropping money on citizens from helicopters, but that would be a rather blunt instrument.

It seems to me that the Fed needs to buy something besides Treasury and agency bonds. The obvious alternative to Treasuries would be foreign government bonds, or gold. Since the former would constitute a “currency war”, that would seem to leave gold.

I have no doubt that if the Fed were to announce that it will buy gold until it has achieved 2% inflation and 6.5% unemployment, it would get there. It would disrupt the gold market (and enrich some of the wrong people) but that is a small price to pay. No foreign government could object to the Fed buying gold; it’s been doing it for 100 years.

But I said it more or less three times a year ago this month, here, here and especially here:

The United States at present is in the throes of a deflationary collapse of monetarist making, not of dollar currency but of credit money, and it is the principal reason for the collapse of GDP. One of the largest sources of the "currency" of credit money in recent years has been mortgages, which are now effectively unacceptable as collateral because of the rot permeating the system in the form of defaults and underwaters.

Federal Reserve policy has actually been removing such collateral from circulation, along with US Treasuries, by placing it on its balance sheet. But since there is nothing "real" behind the dollars the Fed replaces this collateral with, there is no corresponding expansion of credit in size to match the former vigor of the process.

So perhaps the Fed should QE gold instead of MBS and Treasuries to provide something real behind the money created which would give that money a surer basis in collateral.

Central banks around the world have been buying gold in quantities not seen in 30 years in order to fill the collateral gap. The Fed should join them.

Housing is a store of value, not an investment

Catherine Rampell for WaPo puts the long term real compound annual gain from housing at 0.3%. For the 100 years up to 1990, i.e. before the housing bubble, Robert Shiller has put it at 0.2% per annum, 33% less!

Here is Rampell:

Over the past century, housing prices have grown at a compound annual rate of just 0.3 percent once one adjusts for inflation, according to my calculations using Shiller’s historical housing data. Over the same period, the Standard & Poor’s 500-stock index has had comparable annual returns of about 6.5 percent.

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Housing's ability to retain its value has made it an attractive target for securitization as mortgage-backed securities which have been highly liquid and trade in large denominations just like US Treasury securities, facilitating transactions.

Bank mergers have doubled annually since 2009 as Dodd-Frank and now new capital rules begin to bite

The Wall Street Journal reports here:

More small banks are selling themselves, and executives say Washington regulations are a big reason why. ... In all, there were 204 bank mergers in 2013 in which the target bank had less than $1 billion in assets, according to financial-research firm SNL Financial. That is about the same as the 206 in 2012 and up significantly from 102 in 2009, before Dodd-Frank was passed in 2010. As recently as 2011, the number was 130. ... Many bankers think smaller banks now must have at least $1 billion in assets to cope with the increased regulatory burden. ... One issue some small banks say they are having a big problem with is the Consumer Financial Protection Bureau's new "qualified mortgage" rules, or QM, which require lenders to make sure borrowers can afford the mortgages they take out. Some banks say following the rules, which took effect in January, has been complicated and time-consuming.

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New capital rules being phased in between now and 2018 will require the largest banks to boost capital to 5% of assets from 3% and include risk assets in the calculations according to the New York Times, here:

Under the rule, banks with over $700 billion in assets will have to raise their capital, measured by the leverage ratio, to 5 percent of their overall assets. The ratio will have to be 6 percent at the banks’ federally insured banking subsidiaries, where many of their riskiest activities are. ... Senator Sherrod Brown, Democrat of Ohio, who has introduced a bill with Senator David Vitter, Republican of Louisiana, that envisions higher leverage ratios than those approved on Tuesday, said, “Today’s rule is a major step forward, but we can and must do more.”

Foreclosure's Ground Zero Finally Shifts To New Jersey And New York After Region Being In "Suspended Animation" For Years

So reports Bloomberg here in late February:

The epicenter of the U.S. foreclosure crisis is shifting to New Jersey and New York, threatening a housing rebound in one of the country’s most densely populated areas. ...

The number of New York and New Jersey homeowners losing their houses reached a three-year high in 2013. Banks in these states have been slowly working through a backlog of delinquent loans that enabled borrowers to skip mortgage payments for years. ...

“It is really a delayed reaction in New Jersey and New York,” said Michael Fratantoni, chief economist for the Mortgage Bankers Association in Washington. “Loans that were made pre-crisis have been in this state of suspended animation for a number of years. And now, we are beginning to see the pace of resolution pick up.”

Keith Jurow has been warning about this since at least early 2013.

"Ben Bernanke Has An Almost Unbroken Record Of Being Wrong"

Bye Bye Ben.

Seen here:

Ben Bernanke has an almost unbroken record of being wrong.

In 2006, at the zenith of the housing bubble, he told Congress that house prices would continue to rise. In 2007, he testified that failing subprime mortgages would not threaten the economy.

In January 2008, at a luncheon, he told his audience there was no recession on the horizon. As late as July 2008, he insisted that mortgage giants Fannie Mae and Freddie Mac, already teetering on the verge of collapse, were “ adequately capitalized [and] in no danger of failing.”

Following the Crash of 2008, Bernanke’s prognostications did not much improve. Nor did Yellen’s, who had also misjudged the housing bubble, and who became Fed vice chairman in 2010.

The two of them got the “recovery” they predicted, but the weakest “recovery” in history.

Middle Class In Flames: All The Fed Has Done Is Help The Banks

Naked Capitalism supports Occupy Wall Street. Heh, heh. Does Jeep know?

Yves Smith of Naked Capitalism, here:

Oh, puhleeze. Robust recovery for who? The Fed not only threw staggering amounts of firepower at salvaging bank balance sheets, while showing no interest in rescuing ordinary Americans. It was also all-in on the Administration’s program to paper over the banks’ chain of title problems and their widespread servicing abuses, and didn’t bother to obtain any meaningful concessions or reforms, the most important of which would have been principal modifications, a remedy favored by investors as well as homeowners. The Fed has been all too happy to accept mission creep rather than speak up forcefully for the need for more fiscal stimulus.

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The analysis is right, but the prescriptions are left: raising the minimum wage, breaking mortgage contracts, and spending money we do not have. Oh, puhleeze. It's Naked Liberalism.

But she's great on Obama's Mussolini-style corporatism, most recently here in response to The New Republic:

I’m actually a bit miffed that Konczal treats the “corporatism” appellation as the sole property of the right wing (in the style sheet of the Vichy Left, calling them “hysterics” is redundant but necessary for the rubes), since I have a prior claim. And what is particularly rich is that Konczal apparently regards the allusion to Mussolini to be unfair . . ..

Obamacare IS corporatist. Here we have the industries that are significant contributors to why the American medical system is so overpriced – the health insurers and Big Pharma – actually playing a major role in writing the legislation. And how is it not a sop to large companies to have the government require that citizens buy your product or else pay large tax penalties? Mr. Market certainly thought so, for the price of health insurer and drug company stocks jumped the day the ACA passed. And remember, the beneficiaries of Obamacare extend beyond the insurers and pharmaceutical makers. Hospitals, who increasingly engage in oligopoly pricing (most surgeries need to be done in hospitals), also come out even stronger because new requirements imposed on doctors’ practices will make it difficult for a retiring MD who practices medicine, as opposed to servicing the rich (e.g., cosmetic surgeons) to sell their business to anyone other than a hospital.

And the label fits in the banking arena like a glove. I’ve ... called both the Bush, but far more often the Obama bank-friendly policies “Mussolini-style corporatism” since 2008, and well before what [Mike] Konczal [of The New Republic] claims is the origin of this description, Tim Carney’s book Obamanomics, published November 30, 2009.

Mortgaged States Their Grandsires' Wreaths Regret

"Yet Reason frowns on war's unequal game,

Where wasted nations raise a single name,

And mortgaged states their grandsires' wreaths regret,
From age to age in everlasting debt;

Wreaths which at last the dear-bought right convey
To rust on medals, or on stones decay."

-- Samuel Johnson, The Vanity of Human Wishes (1749)

Libertarians At Forbes Completely Misrepresent The Mortgage Interest Deduction

Here:

The mortgage interest deduction (MID) is the largest personal tax deduction on the books and is widely considered one of the most sacrosanct tax benefits in the country because it is seen as making homeownership more affordable for middle-class Americans. Our new Reason Foundation research suggests, though, that the average benefits from the MID are not enough to be the difference between renting and home owning for a household.

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If there's a sacrosanct tax benefit in this country, which by the way benefits mostly upper income people who also pay most of the taxes, it's reduced rates of taxation on dividends and long term capital gains, which the Joint Committee on Taxation says costs the federal government $596 billion in lost revenue between 2012 and 2016. The mortgage interest deduction, by contrast, will cost the feds $364 billion. Leave it to Forbes not to mention that.

The mortgage interest deduction may or may not be "the largest personal" deduction, but in the big picture of revenue forfeited by the feds due to tax preferences, which is categorized as "tax loss expenditure", the mortgage interest deduction represents just 6.9% of the revenue lost out of the largest 21 line items in the JCT's report representing $5.25 trillion in tax loss expenditures for the period mentioned (here).

Preferential treatment of income from stocks isn't the biggest preference either (11.4%), but it is much bigger than the preference given to mortgage interest. But businesses do get the biggest preference. When employers provide healthcare contributions, health insurance and long term care insurance, they get to deduct all of that. Cost to the feds? A whopping $706.6 billion (13.5%). And that figure will only grow under ObamaCare.

And how about retirement plan contributions? Cost of excluding both defined benefit and defined contribution plans comes to $505.3 billion over the period (9.6%).

Compared to these, the mortgage interest deduction comes in a distant fourth (in fifth is the earned income tax credit at $319.7 billion).

The much-maligned charitable deduction, meanwhile, which was the original basis for the standard deduction in the tax code, at $172.4 billion represents just 3.3% of the lost $5.25 trillion in revenue from 2012 to 2016. It comes in fourteenth.

There's lots of things wrong with the world, but changing the home mortgage interest deduction isn't going to fix them. For libertarians to focus on it as they do should tell you there's more going on here than meets the eye: an ideological bias against home ownership because it limits "freedom". Millions beg to differ.

Largest Sums Of Federal Revenue Forfeited Because Of The Tax Code, Joint Committee On Taxation, 2012-2016

$706.6 billion: exclusion of employer contributions for healthcare, health insurance premiums and long term care insurance premiums.

$596.0 billion: reduced rates of taxation on dividends and long term capital gains.

$505.3 billion: net exclusion of pension contributions and earnings to defined benefit/contribution plans.

$364.0 billion: mortgage interest deduction.

$319.7 billion: earned income tax credit.

$305.0 billion: exclusion of Medicare Parts A&B benefits.

$289.4 billion: credit for children under 17.

$259.2 billion: deduction of nonbusiness state and local government income taxes, sales taxes and personal property taxes.

$239.7 billion: deferral of active income of controlled foreign corporations.

$236.1 billion: exclusion of capital gains at death.

$184.3 billion: subsidies for participation in healthcare exchanges.

$182.8 billion: exclusion of interest on public purpose state and local government bonds.

$175.8 billion: exclusion of benefits provided under cafeteria plans.

$172.4 billion: deduction for charitable contributions.

$172.1 billion: exclusion of untaxed Social Security and railroad retirement benefits.

$153.8 billion: exclusion of investment income on life insurance and annuity contracts.

$143.0 billion: property tax deduction.

$124.1 billion: exclusion of capital gains on the sale of a home.

$119.1 billion: credits for tuition for post-secondary education.

Crony Socialism: Fed Profits On College Student Loans Rank Third Behind Exxon-Mobil And Apple!

Or is that socialist cronyism?

Anyway, those thirsty blood suckers in the federal government made $41.3 billion off the nation's college student loan program in fiscal 2013, according to the Detroit Free Press, here:

It’s a higher profit level than all but two companies in the world: Exxon Mobil cleared $44.9 billion in 2012, and Apple cleared $41.7 billion.

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That's not quite right, however.

In 2012 the profits thrown off from massive numbers of government bonds and mortgage backed securities "purchased" by the Federal Reserve and returned to the Treasury by the Fed were more than double that, as reported here last January:

The Federal Reserve sent a record $88.9 billion in profits to the Treasury Department in 2012 as it reaped gains from the unconventional programs it launched to spur economic growth.

Last year's remittance to Treasury topped the previous record of $79.3 billion in 2010, Fed records show.

Fed Tapering QE "In Part To Relieve The Collateral Scarcity"

Mentioned here by Peter Coy:

The abrupt shrinkage of the budget deficit this year caused the Treasury Department to cut back on issuance of debt in the shorter maturities that are sought after on Wall Street. Foreign demand has been strong, partly because some European government securities that had been used as collateral are no longer considered safe enough. Finally, the Federal Reserve, in its efforts to stimulate the economy, has been soaking up $85 billion a month of Treasuries and mortgage-backed securities. Some market participants argue that the Fed is planning to taper its bond purchases in part to relieve the collateral scarcity.

Home Buyers Using All Cash Hits All Time High

So says the National Association of Realtors, here:

Walt Molony, a spokesman for the National Association of Realtors, says that the association’s estimates of the share of the market made up by all-cash buyers are lower than the others, at 31% in July, but that they’re still at an all-time high. ... Molony says that investors make up 35% of all-cash buyers (70% of all investors pay cash), while retirees who’ve built up equity in their homes or paid off their mortgages account for 12%. The rest include vacation-home buyers and foreign buyers.

Mortgage Securitization Only Works At The Expense Of Taxpayers And Banks

So says Arnold Kling for The American, here, who provides a useful summary of crony capitalist rent-seeking since World War II:

At this point, all signs point to victory by two of the biggest culprits in the mortgage crisis — the mortgage bankers (firms that originate loans to distribute, not to hold) and the Wall Street investment banks. Both depend on securitization if they are to participate in the mortgage lending process. However, securitization has only been able to compete with traditional bank lending when securities are backed by guarantees from the taxpayers and when bank capital requirements punish banks that hold their own loans.

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Arnold Kling is otherwise famous for his firm grasp of the obvious: "Most home owners are not libertarians."

Bernanke's Crime Against The Elderly: He's Cut Their Income 88%

From Kermit Zieg for The Washington Post, here:

The major architect of the recovery of the past five years has been the Federal Reserve System. ... Everyone seemed to win, but that’s not so. Retirees were badly hurt — devastated, in fact. They have not benefited from lower mortgage rates because their homes generally are paid off. They are not in the stock market because of the volatility. They primarily live on savings and the interest earned on these savings. Ten years ago, a retiree could have earned $40,000 annually on $1 million of savings in a bank. Today, that same $1 million would be lucky to earn $5,000 yearly. If a retirement lifestyle was built on expectations of $40,000 in annual interest income and the reality today is $5,000, the improving economy has no relevance. Economic survival in a low-interest-rate market is the focus for retirees.

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It is always the defenseless who are the first to go under the bus in this country: unborn children, the unemployed and the old.