Friday, July 20, 2007

More Media Economic Illiteracy on Housing Bubble -by Associated Press this Time

Previous: Reuters' Economic Illiteracy Denies Housing Bailout Will Cost Taxpayers Any Money
The Associated Press asserted:

"Massachusetts is among many states that have recently sought to ease spiking foreclosure rates by tightening lending regulations" (AP Business Writer Mark Jewell at
No, the opposite is true.

Tighter lending now increases foreclosures now by eliminating the top 2 options for a person who wants to get out of his/her bad loan by closing the account with a full repayment (no default):
  • Reselling to Yourself (Refinancing): A troubled borrower who got in over his/her head is unable to refinance (same credit score no longer meets new standard when you "raise the bar").
  • Reselling to Others: A troubled borrower who cannot afford his/her home finds fewer shoppers who can afford his/her home (the same tighter standards that prevent the "owner"'s refinancing also prevents potential buyers from qualifying for a mortgage to close the sale).
Tighter lending standards in the past would have prevented many foreclosures today (but that horse already has bolted), and tighter lending standards now might lower the forclosure rate in the future, but the immediate effect of new tighter lending standards today will be to increase the current spike in home mortgage foreclosures.

The article's claim that tighter lending regulations will ease the current foreclosure spike means that the AP is clueless about economic policy, or the state of Massachusetts is clueless about economic policy, or both.

Monday, July 16, 2007

Reuters' Economic Illiteracy Denies Housing Bailout Will Cost Taxpayers Any Money

Reuters apparently believes in the free-money-falling-from-sky theory of bailouts:

"The Massachusetts Housing Finance Agency will contribute $60 million, while Fannie Mae, the largest U.S. home funding source, will add $190 million, to the new fund.
Massachusetts taxpayers will not be asked to bail out borrowers, often with poor credit histories, who were wooed by subprime lenders' offers of attractive initial rates that often skyrocketed later.
Rather, the money for the fund will be raised when MassHousing sells taxable bonds with variable and fixed rates to private investors in the coming weeks, an agency spokesman said" (Reuters).
Where does Reuters think Massachusetts gets the money to pay the interest on the bonds?

Obviously, the only reason that Massachusetts taxpayers are taking out loans (bonds) and paying interest to bondholders is to bailout the delinquent borrowers who cannot pay their mortgages.

Reuters seems confused, since its article's title declared a bailout and then its article denied any taxpayer bailout.

Such nonsensical economic reporting makes one wonder how many Reuters reporters took dodgy mortgages and need a finacial bailout.

PS: California, Colorado, and Wisconsin are eying bailouts similar to the Massachusetts bailout, according to the National Council of State Housing Agency's Director of Housing Advocacy Garth Rieman, via Reuters.

More examples (unfortunately): More Media Economic Illiteracy on Housing Bubble -by Associated Press this Time

Massachusetts' "Big Dig" Housing Bailout Sticks Nation with Bill Again

Quarter-Billion-Dollar Housing Bubble Bailout in Massachusetts

Fed Bailout for the Rich State: Wealthy Massachusetts' "Big Dig" of a Housing Bailout Is a Big Dig into the National Purse . . . Again

The wealthy state of Massachusetts is planning for the rest of the country to foot the bill for its housing bailout by getting most of the quarter-billion dollars ($190 million) in bad-mortgage refinancing from the federally-chartered Fannie Mae. Massachusetts taxpayers are on the hook for the remaining $60 million through a state bond issue.

Homebuilders Seek Taxpayer Bailout in Kansas

Homebuilders Seek Taxpayer Bailout in Kansas

Proposed tax break for home builders studied by Kansas lawmakers

--July 15, 2007 Jim Sullinger article from The Kansas City Star at

Friday, July 13, 2007

Feds Knew Subprime Mortgage Danger 1 1/2 Years Ago

A Confession, a Communist Connection, and a Congress of Academy-Award Nominees

US federal Housing and Urban Development (HUD) Secretary Alphonso Jackson was in Hong Kong shamelessly trying to unload imploding subprime mortgage-backed securities (MBS) on the Chinese with the promise of a bailout by US taxpayers (he mentioned US government backing in a 7/11/07 Bloomberg interview, viewable on BNN Bubble News Network).

Even more telling, Jackson claimed that the federal government including he and Ben Bernanke foresaw today's subprime mess "about a year and a half ago" (late 2005 or early 2006).

Remember Jackson's claim when the politicians do their Casablanca Captain Renault routine that they are shocked--shocked--to learn that there had been risky lending going on in this country.

UPDATE 4/13/08: Jackson was trying to dump MBS on Asia the month before the August 2007 effective Fed funds rate spike and stock-market quake, and the start of Bernanke's panicked bailouts.

Does Jackson's MBS shilling count as insider trading?

Irony or Crime?

Alphonso Jackson update: You Paid $100k for Pictures of Your Fearless Government Leaders

Monday, July 2, 2007

Housing’s New Math: The Seller Pays the Buyer

Previous: Fed Takeover of Subprimes Renews Risk in Mortgage Lending

The LA Times actually tried to portray the federal government’s new taxpayer-backed risky lending as a return to old-fashioned prudence.

You decide:

The old days required a homebuyer to bring a 20% downpayment on a 30-year mortgage, which insured that he/she had his/her own "skin" in the game and an incentive to repay the remaining 80% so as not to forfeit his/her investment.

"Modernizing" and "Bringing the FHA into the 21st Century" with the Fed's New "Home Possible" Lending Practices

Congress is planning to slash the Federal Housing Administration (FHA) lending standard to 0% down and a 40-year mortgage. It is exactly the no downpayment condition, and therefore no home equity, and therefore no risk of the borrower's own money, that makes defaults more likely.

Further, the federally-chartered Freddie Mac offers the "Home Possible 100" with 0% down for up to $417,000 and 3% seller "contributions"--allowing a "buyer" (using the term loosely) to walk into a house worth almost double the national median price with none of his/her own money but with a suitcase full of the seller's money.

Yes, you must pay the buyer to live in your home.

Does that sound like old math or new math?

Fed Takeover of Subprimes Renews Risk in Mortgage Lending

The federal government seems less interested in stopping the subprime mess and more interested in muscling in on the franchise.

Reckless borrowing by unqualified borrowers caused the current housing crash.

Many Congresspeople accused "unregulated" risky lending by the private sector and declared that the solution is authorized risky lending by the government. The difference is that your tax dollars definitely will sit in the pile at the center of the green felt table.

Congress Christens FHA as Our New National Casino

The Federal Housing Administration (FHA) maneuvered to take over the subprime market:

"As an improved alternative to subprime lending practices, Bernardi discussed modernizing the Federal Housing Administration (FHA). 'Reforms must be made for the FHA to adapt to today's marketplace. We have modernized FHA as much as we can but need legislation to truly bring the FHA into the 21st Century. A new FHA could be an antidote for predatory lending and for subprime difficulties,' stated Bernardi" (FHA).
FHA "Modernization" and "Bring the FHA into the 21st Century" Are Euphemisms for Bailout-Backed Recklessness to Keep Housing Prices High

Congress' plan to "modernize" the FHA and "bring the FHA into the 21st Century" simply crowns the FHA as the new subprime king, moving the risk rather than eliminating it. In fact, since the FHA has an implicit promise that you will bailout bad loans with your taxes, one could argue that Congress' FHA "modernization" plan increases risk instead of decreasing it.

It only gets worse when you look at the details of new federal loans:
Housing’s New Math: The Seller Pays the Buyer