Professor Cole's Finance Blog

Yes, I know that the administration is focusing on the "health insurance crisis," but I really think that the housing crisis is more acute and deserves more of our attention.

During recent days, the press appears to agree with me, publishing a number of articles, including today's story in the NYTimes that reads much like the press release available on Treasury's website "hailing" a new milestone in home-loan modifications.

(Funny, the NYT headline first used the verb "claims" then changed it to "hails"; are these guys cheerleaders or reporters? One of my acquantances from New York, who works at the "Grey Lady," decried these young NYT "reporters" who, she said, sit around watching CNN, where the correspondents read the NYT for ideas. Talk about inbreeding!) 

The gist of the story is that the administration's Home Affordable Mortgage Program, or HAMP as it is known by insiders, activists and housing counselors (who claim that HAMP paperwork requirements keeps them on a treadmill like a bunch of hamsters!) is now "hitting its stride" and, according to the NYT article quoting our tax-cheating Treasury Secretary "Turbotax" Tim Geithner, "unaffordable mortgages are now being modified at a pace faster than homes are being sold in foreclosure proceedings."

(What is it with tax cheats in the Democrat ranks these days? Geithner, Daschle, and now Charlie Rangel not only has four rent-controlled apartments in Harlem to which he is not "legally entitled," he can't seem to remember a half million dollars in income! These Democrats cheat more on Uncle Sam than Republicans pols (Sanford, Ensign, etc.) cheat on their wives . . . .) 

Talk about obfuscating! What the heck does Geithner's statement really mean? According to Loan Processing Services report for Sep 2009, more than 600,000 borrowers--not a typo--600,000 became delinquent on their mortgages for the first time during September, rising from previous months and signaling that the U.S. residential real estate market continues to deteriorate at an increasing rate. In that same report, LPS reports that delinquent mortgages hit a new record high of 9.06% and foreclosures hit a new record high of 3.04% for a combined new high of 12.10%. For a dose of reality, go to www.lpsvcs.com and download their report; it is truly frightening for the uninitiated who have been drinking too much Kool-Aid from the media. (Hot stock tip: wait for the Mortgage Bankers Association to release the Q3 results from their National Delinquency Survey, which follows LPS with a lag but is much more widely covered in the media. Look for a three-figure drop in the Dow following its release, much like last Thursday's drop in anticipation of the bad employment report.)

The number of foreclosure sales, as cited by Geithner has been stunted by various foreclosure moratoria around the country, which serve only to distort foreclosure statistics but have no real effect of the market or doing anything more than delaying the inevitable for homes that are at the last stage of the foreclosure process--sheriff's sale. These moratoria also have slowed the entry of delinquent mortgages into the foreclosure process, creating a massive backlog of mortgage loans that are delinquent more than 90 days and often more than 180 and even 270 days. LPS refers to this as the "shadow foreclosure inventory." LPS also reports that new foreclosures during September fell to the lowest level since January. Green shoots, anyone? (Read the rest of the report!) 

Compounding this problem is the fact that banks are supposed to "mark to market" these loans when they go into the foreclosure process, leading many lenders to put off this "unpleasant" task for as along as possible. Other concerns are liabilities that hit the lender when a mortgage goes into foreclosure, such as fines for unkempt lawns, "green" pools, etc. These factors also are contributing to the growing "shadow foreclosure inventory."

At least the flack who wrote Treasury's press release had the decency to write "new modifications are being issued at a faster rate than new homeowners are becoming eligible." Well, thank goodness for that! According to the detailed report referenced in the press release, just over 100,000 "trial mods" were issued during September, implying that less than 100,000 new homeowners became eligible. Hmm. 600,000 newly delinquent homeowners, but, apparently, fewer than one in six are "eligible" for mods. I'm sure that the "one in six" will be so happy. The remaining 500,000 will have to join the 785,000 workers who reported to the BLS that they had lost their jobs during September (look at the household survey, not the establishment survey.) in looking for "green shoots" elsewhere.

Oh, those "lucky" ones, who got the trial mods? Those mods predominantly consist of longer maturities and lower interest rates, but rarely include principal reduction, without which delinquency recidivism is reported to be more than 50% during the six months following modification. Look for the lucky ones to be re-entering the whole delinquency/foreclosure process sometime during 2010. This truly is starting to look like a repeat of the Japanese "lost decade" of the 1990s which followed their banking meltdown in the early 1990s.

What happened to the "transparency" that we were promised by this new administration? Why can't they simply be honest with the numbers? The housing crisis is bad and getting worse. Admit it. Come up with a plan to deal with it. Stop lying to us.

Joe Wilson, where are you when we need you? (Not Valerie Plame's Joe Wilson, South Carolina's.)

Oh yeah, that was the "health insurance crisis" not the "housing crisis."

Well, can I take this opportunity to say "YOU LIE, MR. GEITHNER!"

Oh, yeah.

He already admitted that he did that to the IRS. And got away with it.

So why would he listen to me . . . ?