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And on February 13, 2009, on the 14th page of the main section of the New York Times, an article entitled "Global Economic Crisis Poses Top Threat to US, Spy Chief Warns". The article states: "The new director of National Intelligence (Dennis C. Blair) told congress on Thursday the global economic turmoil and the instability it could ignite has out-paced terrorism as the most urgent threat facing the United States. Dennis C. Blair singled out the economic downturn as "the primary near-term security concern" for the country and he warned that if it continued to spread and deepened, it would contribute to unrest and imperil some governments. Dennis Blair makes these comments at a time when I would like to reduce all foreign aid to pay for the stimulus program.
And on page 15 of the same issue of New York Times, a caption under a photograph of an older women and man walking away from the camera stated: "Mexico City's government is offering poor men 60 and over free Viagra." "Everyone has a right to be happy", the mayor said. This, in my opinion is a real stimulus program. But, seriousness aside, Mexico City's promise of Viagra is to attract older men into public clinics to help them to get treatment for other related health problems like diabetes, hypertension, obesity and depression.
The only positive thing in the falling economy, at least for women, is that 82% of the job losses have befallen men, according to the February 6, 2009 issue of the New York Times. "Women tend to be employed in areas like education and health care, which are less sensitive to economic ups and downs", the Times said.
In the February 14, 2009 issue of the New York Post the business page said that "Four banks at the center of the financial crisis yesterday said they would freeze foreclosures until next month as they await President Obama's plan to keep struggling borrowers in their homes". "Citibank, JP Morgan Chase, Bank of America and Morgan Stanley each said they would suspend foreclosures for the next few weeks and indicated that they stand ready to help the Obama administration map out a plan to modify mortgages.
February 15, 2009, the New York Post reported "Greenwich Ghost Town". They state "almost 50 mansions built on speculation for the hedge funds set – and priced from $5 million to upwards to $25 million – sit empty in Greenwich, Connecticut., where the real estate market has tanked." "They are going nowhere. Nothing selling," said Christopher Fountain who writes a blog called "For What Its Worth", about the Greenwich real-estate scene. This is in a town of 62,000 people where the $157,232 median income perpetually places it among the richest towns in America. The Post said the town laid off 39 workers last week.
"Japan's Economy Plunges at an Annual Rate of 12.7%", the headline at the bottom of the Business Day section of the New York Times on February 16, 2009. This was for the 4th quarter of 2008 as compared to the 3rd quarter decline of 3.3%. The economy of the United States declined at a 3.8% annual rate in the 4th quarter and 1% in the previous quarter", said the Times.
"275 Billion Plan Seeks to Address Crisis in Housing" were the front page headlines in the February 18, 2009 issue of the New York Times "President Obama announced a plan on Wednesday to help as many as nine million American homeowners refinance their mortgages or avert foreclosure, saying that it would shore up housing prices and stabilize neighborhoods and slow a downward spiral that was "unraveling homeownership, the middle class and the American Dream itself." The Times continued: "It could ultimately cost taxpayers $275 billion - $75 billion in direct spending to keep people in their homes and the rest in additional financial backing for the government – controlled mortgage giant, Fannie Mae and Freddie Mac." "The plan has three components. The first would help homeowners who are still current on their payments, but who are paying high interest rates and cannot refinance because they do not have enough equity in their homes, a problem affecting growing numbers of people as housing values tumble. A second component would assist about 4 million people who are at risk of losing their homes. It would provide incentives to lenders to who alter the terms of the loans to make them more affordable for the troubled borrowers. A third component would try to increase the credit available for mortgage in general by giving $200 billion of additional financial backup to Fannie Mae and Freddie Mac." The plan also calls on Congress to give bankruptcy judges the power to change terms of mortgages and reduce the monthly payments.
This article in the Times describes how people in the first component, "responsible homeowners" (4 to 5 million households), can refinance with Fannie Mac with the loan being as high as 105% of the market value and receive a more favorable interest rate than they have. Those people whose mortgage is more than 105% of the market value do not qualify under this component. The people in the second component (3 to 4 million) of "At Risk Homeowners" (people who owe more than 105% of the market value of their home) will be able to have their lenders reduce their payments no more than 38% of the borrower's income with the government matching further reductions down to 31%.
The NY Post on that same day, February 19, 2009, summarized the plan as follows:
The New York Times Business Day section on this same day, February 19, 2009 had an article on the 3rd page entitled "Markets Finish Little Changed Despite Bleak Reports on Housing." The article stated "Even as Mr. Obama outlined a $75 billion plan to give as many as $7-$9 million in assistance in refinancing their mortgages or avoiding foreclosure, a government report provided more gloomy news for the housing sector." "The Commerce Department reported on Wednesday that privately owned housing starts in January fell 16.8% from December, to an annual rate of 466,000. This was the slowest pace since 1959". The article continues: "Home values, which rose steadily for more than a decade, have fallen by an average of 25% from their peaks, and economists expect that prices will continue to slide as more people lose their jobs and the economy slips deeper into recession. "Housing and the US economy are still in a free fall", said Nariman Behravech, chief economist at IHS Global Insight. "It's clear that we haven't done anything to stabilize housing. We haven't stabilized the rise in foreclosures and until we do that, I think we're not going to see a bottom."
Sunday's New York Post, 02/22/09, had an article called "The Foreclosure Five". It talked about five states who have big foreclosure problems. The following chart partially summarizes a larger chart in that paper:
State Foreclosures 1 of Every Thousand Home Price Decline 1 Year Mortgages Under Water
The above chart shows that the foreclosure crisis is not a national crisis, as President Obama wants us to believe. In short, the entire country will pay for the problems occurring in a handful of states.
And the same issue of the New York Post talked about the foreclosure process in Florida and New York, where judges have stopped the foreclosure process since loan services and banks who are bringing the foreclosure action don't have a legal standing. "The loan services bringing most of the foreclosure actions in the country don't own the mortgages and have no standing to take away a person's home, said the lawyer, April Charney." The article continues: "The strategy has spread virtually around the country and now thousands of foreclosure lawsuits are sitting idly – in legal limbo." "At least one Brooklyn Judge, Arnold M. Schack, is already using the strategy himself in the courtroom. He told a reporter recently that he denies more foreclosures than he approves. Last summer, 13 of the 14 foreclosure actions that came before him were denied. "I want to see the servicing agent's power of attorney. I want to see all the paperwork before I approve it," he said. "If the paperwork is garbage, I deny it. If you're going to take someone's home away, it should be done properly."
The Post states that "The legal issue is that banks turn the mortgages into bonds, which are put into trusts, like collaterized debt obligations, or CDO's. The bank ‘sells' the CDO the right to collect the revenue stream but, according to Charney, not the equity right to the property. This begs the question, why don't the banks or investment firms who packaged these CDO's conduct the foreclosure action? Maybe this is why so high losses were posted by every major bank and investment firm. Maybe they can't foreclosure on a mortgage because they forgot to record the document which said who owns the mortgage. Maybe in their rush to make high fees they overlooked this. I always wondered why the banks and investment firms panicked at the first sign of trouble. I always thought that if the foreclosure process proceeded that the banks would eventually recover at least 50% of the mortgage. However, maybe they cannot legally foreclose on the properties. If that is the case, then indeed all these mortgages are worthless.
On February 23, 2009, the front page of the New York Times had an article, "As Doubts Grow, US Will Judge Banks' Stability". The article states, "The Obama administration will begin taking a hard look at the financial condition of the country's 20 biggest banks this week to judge whether they could hold up even if the downturn worsens further than policy makers already expect. These reviews of the banks' books, known as a "stress test", are heightening a dilemma for Obama aides about how candid they should be about the health of banks like Citigroup and Bank of America. The article states that, "Bank shares were pummeled last week, partly because of rumors that the government might nationalize some of the banks. The article continues, "In yet another sign of distress for the banks, Citigroup officiates were in active talks with federal regulators on Sunday night about plans for the government to take a bigger ownership stake in the bank, according to a person close to the talks. And on February 28, 2009, the Business Day section of the New York Times headline was "Citi Rescue May Not Be Its Last". The government increased its ownership in Citibank from 8% (when they took the TARP money) to 36%. The Times reports, "Wall Street's judgment was swift and brutal. Citigroup's share price, which a little over 2 years ago was flying high at $55 per share is a mere $1.50 a share (down 97% in 2 years). This increase from 4% to 36% involved no new money and the government moved to convert its preferred stock to common stock. The Times stated, "The move was designed to allay fears that Citigroup's plunging stock price might prompt customers to pull money from the bank." In a related article that same day, the Times said that the other preferred stockholders could own a 38% stake in the bank if they all convert their shares. This would dilute existing common shareholders who together would now own just 26% of the bank. This article talked about Prince Walid bin Talah of Saudi Arabia, the grandson of Saudi Arabia's founding King, Abdul-Aziz Ibn Saud. The Times said his company, Kingdom Holdings, reported a $7.9 billion loss, which were in investments like Citigroup, The News Corporation and Time Warner. Forbes had estimated his net worth at $21 billion. That's only a 38% loss "Bret W. Setser, an analyst at the Council of Foreign Relations estimates that the Abu Dhabi fund lost more than 30% last year from a peak of $480 billion. This couldn't happen to a nicer group of people.
The March 1, 2009 issue of the New York Post had a headline "Homes Still to Fall and Economist: US Needs a Bust After Boom". This article states, "While housing prices have fallen 32.5% over the last two years (in the 10 largest US markets). They still stand well above levels before the bubble and need to fall up to another 20% to create demand and restore balance in the market, according to two leading housing industry economists." The article continues that "the housing bust has to continue naturally to bring home prices back to near normal 1999 levels" and that "the plan by the White House and Congress to stop foreclosures and keep cash-strapped homeowners in the houses will only prolong the mortgage meltdown. "It is not productive to artificially support house prices at an unsustainable level," said David Wyss, Chief Economist at Standard and Pours in New York, who collaborates on the much followed Standard & Poor's Case – Shiller Index. "Shiller points out the fact that in the mini-housing boom of the mid-1970s his index shot up from 105.7 in 1976 to 122.1 in 1979. The index then dropped steadily over the next five years to 105.1 to restore its equilibrium, allowing another boom – to a 127.9 level in 1989. Wyss said it is hard to work out where home prices should ultimately come to a rest but said it helps to look at real estate prices in relation to household income. Wyss has determined that home prices were running at an all-time high of about 344 percent of annual household income in the third quarter of 2005 when the market was reaching its peak. ‘The historical average is about 270 percent,' Wyss said. The current numbers show that house prices have fallen so far that the ratio is actually running below the historical average at 245 percent. But Wyss believes house prices have to fall much further before they can begin to recover their natural equilibrium. ‘I think the household income ratio will fall to about 210 percent by 2011 and that is when things will start to turn around,' Wyss added.
Read previous Real Estate & Housing Market News.
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