Richard Moore

Original source URL:

Tuesday, March 13, 2007


Hold on to your assets ~  The  deepest housing decline in 16 years is just 
beginning and will get worse.  Today the Dow Jones index was off 242 Points ( 
almost 2 % )  Nasdaq indexdown 52 ( almost 2 % ) and S&P index down 28 ( almost 
2 % ).  Technically, if the Dow breaks below 12,000 ~ it's a freefall where 
panic selling wlll reinforce the downward momentum.

The ripple effect of a collapsing housing market where over a million Americans 
could lose their homes will touch every segment of our economy and lead to the 
mother of all recessions ~ despite the actions of the ( PPP ) Paulson Plunge 
Protection Team.

If you haven't downsized yet ~ you best be actively thinking about it because 
it's not going to be pretty by mid 2007. Here's a  Bob Ivry's (Bloomberg) 
excerpt on the current housing bust, its causes and implications.

Allen L Roland

Foreclosures May Hit 1.5 Million in U.S. Housing Bust
By Bob Ivry: http://snipurl.com/1ctrs

March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 
16 years is about to get worse.

As many as 1.5 million more Americans may lose their homes, another 100,000 
people in housing-related industries could be fired, and an estimated 100 
additional subprime mortgage companies that lend money to people with bad or 
limited credit may go under, according to realtors, economists, analysts and a 
Federal Reserve governor. Financial stocks also could extend their declines over
mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, 
has been so disappointing that the National Association of Home Builders in 
Washington now expects purchases to fall for the sixth consecutive quarter after
it predicted a gain just last month.

" The correction will last another year,'' said Mark Zandi, chief economist for 
Moody's Economy.com in West Chester, Pennsylvania.  " Fewer people qualifying 
for mortgages means there will be less borrowers, and that will weigh on 

A five-year housing boom that ended in 2006 expanded home- ownership to a record
number of U.S. households. Now it has given way to mounting defaults, failing 
subprime mortgage companies and an increasing number of unsold homes.

Last Housing Slump

If this slump follows the same pattern as the last one, in 1991, it will persist
for at least another year and may fuel a recession. New-home sales declined 45 
percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 
1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief 
economist of the California Association of Realtors.

This time around, new-home sales have declined 28 percent since September 2005, 
hitting a low in January, the last month for which data is available. And though
the national jobless rate is near a five-year low this month, mortgage-related 
jobs fell by almost 2,000 in January alone. At least two dozen of the more than 
8,000 mortgage lenders have been forced to close or sell operations since the 
start of 2006.

Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage 
Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in 
Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, 
Connecticut and Fremont General Corp. together have fired more than 5,600 
workers in the past year.

New Century

New Century Financial Corp., the second-largest subprime lender, said today it 
ran out of cash to pay back creditors who are demanding their money now. The 
Irvine, California-based company has lost 90 percent of its market value this 
year and stopped making new subprime loans, prompting speculation it will seek 
bankruptcy protection. New Century already has cut 300 jobs and its 7,000 
remaining employees are waiting to see if the company will survive.

Fremont General, the Brea, California-based lender that is trying to sell its 
residential-mortgage unit, was ordered to stop making subprime loans by the U.S.
Federal Deposit Insurance Corp. last week. Fremont was marketing and extending 
loans ``in a way that substantially increased the likelihood of borrower default
or other loss to the bank,'' the FDIC said last week.

Doug Duncan, chief economist of the Washington-based Mortgage Bankers 
Association, predicted in January that more than 100 home lenders may fail this 

The subprime crisis ``has taken the fuel out of the real estate market,'' said 
Edward Leamer, director of the UCLA Anderson Forecast in Los Angeles. ``The 
market needs new money in order to appreciate, and all of that money is gone for
a very long time. The regulators are not going to allow it to happen again.''

Higher Rates

Subprime mortgages are given to people who wouldn't qualify for standard home 
loans and typically have rates at least 2 or 3 percentage points above safer 
prime loans. The portion of subprime loans that financed new mortgages rose to 
20 percent last year from 5 percent in 2001, according to the Mortgage Bankers 

Subprime loans contributed to a home-ownership rate that reached a record 69.3 
percent of U.S. households in the second quarter of 2004, up 5.4 percentage 
points from the same period in 1991, according to the U.S. Census Bureau.

" Probably the gain in home ownership over the last four, five years, is almost 
entirely due to looser lending standards,'' said James Fielding, a homebuilding 
credit analyst at Standard & Poor's in New York.

Refinancing Option

As home prices steadily gained from 2001 to 2006, homeowners who fell behind on 
mortgage payments could sell their homes and pay off their loans or get better 
refinancing terms based on the higher value of their property. Now that home 
values are declining, many borrowers won't be able to refinance because they 
would have to come up with the difference between their new mortgage and what 
their home is now worth.

Defaults may dump more than 500,000 homes on a housing market already saturated 
with leftover inventory built during boom times, New York-based bond research 
firm CreditSights Inc. said in a March 1 report.

Mortgage defaults may climb to $225 billion over the next two years, compared 
with about $40 billion annually in 2005 and 2006, according to debt strategists 
at Lehman Brothers Holdings Inc.

Seven-Year High

The portion of subprime loans more than 60 days delinquent or in foreclosure 
rose to 10 percent as of Dec. 31, from 5.4 percent in May 2005, the highest in 
seven years, according to data compiled by Friedman Billings Ramsey Group Inc. 
of Arlington, Virginia.

Many of the delinquencies came from loans where borrowers didn't have to provide
tax returns or other evidence of income, or where they financed 100 percent or 
more of the home's value, CreditSights analyst David Hendler wrote in a March 5 
report. Other defaults came on adjustable-rate mortgages with artificially low 
introductory ``teaser'' rates, sometimes with ``option'' payment plans that 
allowed borrowers to defer interest.

Banks ought to be concerned about such loans and are likely to see more missed 
payments and foreclosures as consumers with weak credit histories begin to face 
higher monthly mortgage payments, Federal Reserve Governor Susan Bies said last 

" What we're seeing in this narrow segment is the beginning of the wave,'' Bies 
said. " This is not the end, this is the beginning.''

About 1.5 million U.S. homeowners out of a total of 80 million will lose their 
homes through foreclosure, University of California-Berkeley economist Ken Rosen
said last week.

" The subprime borrowers paid too much for their homes, and all of a sudden, 
they'll see their house value drop by 10 to 15 percent,'' Rosen said.

Rest of article at  http://snipurl.com/1ctrs

Allen L Roland is a practicing psychotherapist, author and lecturer who also 
shares a daily political and social commentary on his weblog and website 
allenroland.com He also guest hosts a monthly national radio show TRUTHTALK on 
Conscious talk radio www.conscioustalk.net

Allen Roland¹s weblog: http://blogs.salon.com/0002255/
Website: www.allenroland.com

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