SubscribeThe Flawed Housing Bill - How we will pay
August 22, 2008
Danger Will Robinson…. Warning..Warning….Stay off the Road!
Recently, after I reviewed and wrote about the recent passage of the Housing Bill, I began to look at it more closely. I spoke with a few colleagues to try to understand what seemed to me to be a flawed plan. They agreed that something was afoul. Either the plan was rushed in order to get something on the books or some concessions were made to provide a benefit to a few of the financial firms that have been getting clobbered.
The truth is that I am disgusted with this plan as it has become a game where the winners have been predetermined - and we all know that they are not going to include you or me. Just the other day, in my quest to provide an easy and adequate answer to what is going on I tried to explain my thoughts to a client using metaphors.
I explained that what has been going on in the financial sector is can be somewhat compared to a time when you were driving down a straight road. Foot after foot, mile after mile, you drive flawlessly. When you are directed to accelerate, you speed up. When at a stop sign, you stop. Yield, turn, accelerate, stop, put your blinker on, pass a car, look left and right and continue on your way. All is fine with your driving. Then, you realize that the road you are on doesn’t actually exist. Panic sets in and then you see that it is there again, like it never left. So, you continue on your way with a scant remembrance of the bizarre occurrence.
When you pull into town and explain what happened, the Mayor tells you that they know that this is something that occurs, but they always fix it immediately to make sure no one gets hurt. So, you drive on. A few miles later the same thing happens. This time though, it last longer and is much scarier. Again and again, the same sequence of events unfolds and each time the road disappears, you get a Mayoral promise and so on… Read more
Money Girl - Mortgage Short Sales
May 28, 2008
In this edition of Money Girl, I will be discussing a term that unfortunately, many of us will need to know…. mortgage short sales.
Here is the excerpt from the episode…
Having trouble making your mortgage payments or know someone who is? Close to foreclosure but hope to avoid it and looking for another way out?
Well, you are not alone. Today with the housing market plunge, a slowing economy, gas at $4 a gallon and massive job layoffs, many people are on the brink of losing their homes. Every day, hundreds of honest, hard working people who have always paid their bills on time and were living the American Dream decide to just pack up and walk away. The proof is in…
Read/Listen to the rest of this episode
Rock Bottom Housing Prices or Simply Math Gone Wild
May 20, 2008
OK, I have a question… (seriously) The idea that home prices are now at “rock-bottom” prices has been floating around lately. How is the NAHB coming up with their conclusions? In particular, do they include the sales price of short-sales? How about foreclosures?
If so, then is the average price really as low as it is going to go? If you can provide the details, I would be most appreciative.
From CNN.com:
Housing affordability best in four years - May. 20, 2008
As a result, 53.8% of all new and existing homes sold nationwide during the first three months of 2008 were affordable to families earning the median household income of $61,500, according to the latest Housing Opportunity Index released Tuesday by Wells Fargo and the National Association of Home Builders (NAHB).
That’s up from 44% during the first three months of 2007 with home prices the most affordable they’ve been since the three month period that ended June 30, 2004.
“Three factors combined to substantially increase housing affordability,” said NAHB president, Sandy Dunn, in a press release accompanying the report. “Mortgage rates returning to near the record low levels of a few years ago, a $2,500 rise in family income nationwide (from 2007 to 2008) and lower house prices…
Double Whammy: Bank-Card Companies are Next
March 24, 2008
Aside from Visa (V) or Mastercard (MA), it doesn’t seem as if the credit card issuers have been getting the attention they deserve. With all of the panic and concern surrounding the brokers and builders, perhaps plates are too full to take on any more. Yet, I have been thinking about how easy credit policies made available for housing created a monstrous economic problem. Even so, it does seems plausible that companies issuing collateralized debt could eventually see a recovery if the underlying property can be liquidated for some portion of its worth. But, what happens as defaults rise on credit/bank card debt, which is only backed by the full faith and credit of the borrower?
During the past few months, investors have pummeled Discover Financial (DFS) and others lenders over fear of rising defaults and delinquencies. Here is an example of the recent news and behavior of credit companies caused by the subprime problems (2/12/08 Washington Post):
The subprime mortgage meltdown has spilled into the credit card industry in other ways. Banks have reported steep write-offs related to the mortgage mess, and their stock prices have plummeted.
“Credit cards historically have been a very profitable segment for the banking industry, so what they’re doing is trying to squeeze customers as much as they can, particularly for accounts they don’t see as profitable or as high risk,” said Curtis Arnold, founder of CardRatings.com, a consumer resource on credit cards.
Bank of America (BAC), for instance, notified some customers last month that their rates would increase as a result of a periodic review of their credit risk. Chase (JPM) last fall increased the rate paid by new customers of its Freedom card. Bank of America and Chase are also among some banks that have increased ATM fees for other banks’ customers to as much as $3. Capital One (COF) has changed its cash-advance fee for new customers from 19 percent to 23 percent.
Beyond the current economic crisis, there is an even more troubling issue confronting the industry with the pending legislation known as H.R. 5244: (MSNBC Consumerman)
‘The Credit Cardholders’ Bill of Rights Act of 2008, known as H.R. 5244, would protect cardholders from arbitrary interest rate increases and unfair fees. Maloney, who chairs the House Financial Institutions and Consumer Credit Subcommittee, is quick to point out that her bill does not have any price controls. It does not cap rates or fees.
Interestingly, it looks as though some analysts are continuing to recommend a BUY rating on COF and other names within the sector and are oblivious to the mountain of problems facing bank card companies, aka: The Double Whammy: (Yahoo/AP)
Amid difficulties with mortgages in the U.S. and unloading corporate debt, banks are competing more than ever for market share in their core business — deposits. A large source of profit, banks are introducing newer, higher-yielding accounts to attract more customers’ cash.
The grease that keeps the wheels turning for these companies is capital. In times when money is easily available, bank-card companies utilize their customer accounts to lend money to the credit card customers. As credit card balances rise, new capital is needed to meet the consumer demand.
In order to bring in fresh capital, brokers such as Lehman (LEH), JP Morgan and Goldman Sachs (GS) raise money through note, bond and stock offerings. What do banks do? Of course if they are publicly traded they have the ability to do the same as the brokers and other companies, yet a quieter and quicker maneuver is the bring in new deposits through higher yielding savings accounts. This also helps to bring up the reserve requirements for loans issued through credit card issues and direct loans.
The simple point shows that as customers continue to look for safer alternatives and margins are squeezed as delinquencies and defaults rise, banks that do a big business within the consumer credit card arena could be hit by both problems of limited capital available to loan and ceilings on the fees they can charge for those loans.
The problem for COF is not restricted to our country. Over the past several years, Capital One move aggressively into England and offered Read more
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