The scuttlebutt amongst conservatives since the beginning of the subprime mortgage mess has been that the Community Reinvestment Act (conveniently expanded during the Clinton years) was the source of the troubles in the capital markets. Being a housing economist with a fiscally conservative disposition (although not a registered republican or democrat) I always found this hard to swallow. Particularly because having been in the mortgage finance arena for over a decade, I knew intimately how the secondary market worked. Subprime mortgages are not purchased by Fannie Mae and Freddie Mac–although they DO have an expanded approval program that could be considered “subprime”. Now, admittedly the world of mortgage backed securities, collateralized debt obligations and credit default swaps is highly convoluted. Exactly where certain traunches are housed can be very difficult to untangle. But just looking at my company’s own numbers, we never had a statistically significant difference between default rates on our “low income” mortgages and our “prime” mortgages.

Turns out, that hunch proved to be right. Yesterday, John C. Dugan–the comptroller of the currency appointed by President Bush (hardly a patsy for the dems) released a statement that categorically disagrees with the argument that the CRA is at least partly to blame for the ongoing credit crisis. In fact, during  the second quarter of 2008 loans offered in partnership with NeighborWorks Organizations actually have a lower default rate than even conventional conforming mortgages. “Foreclosure rates within the NeighborWorks network were just 0.21 percent in the second quarter of this year, compared to 4.26 percent of subprime loans and 0.61 percent for conventional conforming mortgages,” said Dugan.

The fact of the matter is that affordable housing is a good thing. It helps lift communities all over America and for real estate investors who ethically focus on Section 8 properties, affordable housing multifamily developments and low income housing, it can be quite profitable. Many of my own clients are some of the most successful residential and commercial real estate investors in the world. Almost without exception, they all have at least a portion of their real estate portfolio allocated towards affordable housing. Programs like the CRA are a wonderful example of public-private partnerships.

Photo Credit: George the Geek

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Tags: affordable housing, community reinvestment act, subprime mortgage

The economy is sinking faster than a mafia hitman wearing cement shoes in water; and, the mortgage/housing crisis is clearly to blame.

Wall Street was apparently totally shocked today when the Labor Department reported that 63, 000 nonfarm jobs were lost last month….As Reuters points out, the problem is that Wall Street experts had expected that 25,000 positions would actually be added. So much for experts!

Stocks Down

This news helped send stocks into a tailspin, closing at their lowest level in 19 months.

Reuters points out that this bad news came at the same time that “jumbo” mortgage lender Thornburg Mortgage was unable to meet demands from creditors for upfront cash. Not good.

More and more experts are now saying the U.S. is in a recession, official or not.

And, the worst is yet to come. There will be still more foreclosures this year…many more. The credit markets are getting tighter despite Fed action. And, consumer confidence continues to go down.

It is no longer accurate to refer to this as a subprime mortgage crisis. Let’s just agree that this is a financial crisis, period! Okay.

Tags: Foreclosures, housing crisis, labor-department, recession, stocks, subprime mortgage, thornburg mortgage, Wall-Street

Foreclosures are up 79 percent!

Now that’s something. And that is exactly how much the foreclosure rate in this country increased by in 2007 from the year before.

The latest figures from RealtyTrac paint an even darker picture for the near future: apparently lots of folks just began falling behind on mortgage payments since November, meaning many many more foreclosures ahead barring some economic miracle.

Not likely that President Bush’s notion of giving tax rebates to most Americans will do much good when it comes to the mortage/housing crisis. For $600 you can just about buy new bathroom fixtures nowadays…maybe?

Four states really stood out in terms of the number of foreclosures–Nevada, Florida, Michigan and California top the list, but take no comfort if you happen to live in Colorado, Ohio, Georgia, Arizona, Illinois or Indiana.

Over the next couple of years, nearly 2 million subprime mortgages will bump up to higher interest rates which will no doubt translate into yet more foreclosures.

If you happen to be one of the lucky few with golden credit and an eye toward buying a chunk of real estate, there will probably be bargains to be had. But, when there is so much pressure, as there is, to unload all those vacant houses, there is also a greater chance of getting caught up in a host of fraudulent practices.

Remember, chaos is the best friend of hucksters.

While there are many advocates of going it alone when buying a house or other piece of real estate to save all sorts of broker fees, it would seem as if this might not be the best of times to do that. This is when a buyer–or a seller for that matter–really needs the advice and wisdom of professionals who have “been there, done that.”

However, this does not mean that you shouldn’t be very careful about the people you may end up doing business with. Just because someone is all warm and fuzzy and greats you with a great big smile and hardy handshake, it doesn’t mean that person is your friend or that he or she is looking out for your own best interests.

If you don’t believe that, just talk to some of the people soon to be homeless.

Foreclosures, mortgage, subprime

Tags: Foreclosures, real estate, realtytrac, subprime mortgage

It is amazing how what started out as a subprime mortgage crisis has morphed into such an enormous economic mess around the world.

On Tuesday alone, the three major U.S. stock indexes went south by more than 2 percent.

Citicorp, the nation’s largest bank, had to write down $18.1 Billion for loses—loses stemming from the subprime crisis.

Tighter credit, also a byproduct of the mortgage mess, is apparently responsible for retailers now reporting their worst showing in five years.

Fears of an impending recession mount; some experts say it is already here.

On CBS radio before, I heard a really scary fact–that the total Citicorp loss is larger than anything any bank in the U.S. has experienced since the Great Depression!.

Wow. That is truly something.

Banks and brokerage houses here are increasingly looking for foreign investments to bail them out. They seem to be getting that help. For now. And, at what political as well as economic cost?

subprime mortgage crisis, economic mess, Citicorp, subprime, mortgage mess, recession, Depression, Banks

Tags: citigroup, stock indexes, subprime mortgage, Wall-Street

If anyone has any doubt…and they shouldn’t…that the subprime mortgage debacle (sort of running out of ways to describe this…any suggestions?) is having an enormous impact on not only the world of real estate, but the world in general, they need to consider this sobering fact:

Citigroup today posted a $9.83 billion dollar loss for the first quarter, it’s first such quarterly loss since 1998 when the current configuration of the banking empire was created.

To raise money, Citigroup has had to hold out the tin cup to foreign investors, including Arab enterprises. So much for U.S. national security post 9/11.

Citigroup has raised 14 and a half BILLION dollars from the Kuwait Investment Authority and a Saudi Arabian prince who has long been an investor in the bank. Apparently, the house of Saud is the only house around without a mortgage problem.

A hefty amount of the raised money comes from the government of Singapore.

So let’s see–that means two Middle Eastern countries, including Saudi Arabia which contributed most of the 9/11 hijackers–will have access to all sorts of personal banking information of each and every American who does business with Citibank–social security numbers, mortgage histories, loans, credit arrangements, addresses, phone numbers, places of residence and business, number of people in your family, your entire spending history if you are a Citibank customer.

But, do remember to take your shoes off at the airport lest you encourage terrorism!

Citibank is the nation’s largest bank, by the way.

The bank is saying its capital base has been depleted by the beating it has taken on subprime mortgages.

But, there is more to this story, of course.

Citigroup also says consumers are really falling behind regular credit—credit cards, loans, that sort of thing.

That, too, is directly related to the housing mess because fewer and fewer people are able to use their homes to borrow against since the value of their homes has more than likely declined.

I don’t like making financial predictions, but, here goes: What began as a mortgage issue will soon become the worst banking fiasco in recent memory as more and more major and not so major banks post losses.

It has already started; it has only just begun. (Yes, I like that Carpenters song, too!)

subprime mortgage, real estate, Citigroup, security, 9/11, Kuwait, loans, credit, subprime

Tags: citibank, citigroup, kuwait, saudi arabia, singapore, subprime mortgage

Will wonders never cease? First, Hillary Clinton proves the media wrong and wins the New Hampshire presidential primary with a comfortable number of votes just 24 hours after some polls said she would lose by as much as 15 percent.

And now, George W. Bush has finally come to recognize what most of the world already knew–the economy is sick and the primary cause is the subprime mortgage debacle.

Bush actually has said that he is watching the U.S. economy carefully now (wasn’t he doing that before?) to help him decide whether the federal government needs to do more before the ship of state takes on too much water.

Of course, Bush is not one to come out and just say, Hey, I was wrong! But, this comes close: “I’m optimistic, as I’ve seen this economy, you know, go through periods of uncertainty,”Bush said. “I like the fundamentals, they look strong, but there are new signals that should cause concern. And, one of the signals is the fact that the housing market is soft.”

Well, yeah! Guess you could say the housing market is soft: the value of homes all across the country has gone down;more and more homeowners find themselves in foreclosure or are about to be;and, the credit market is tighter than a clam shell.

So,yeah,guess you can say the housing market it soft.

And, the President admits this is no short term crisis : ” It’s going to take awhile to work through the downturn,” said Bush.

In another sign that the administration is starting to sweat it, Treasury Secretary Henry Paulson told CNBC the administration is thinking about new ways to help some borrowers who will take a beating from adjustable rate mortgages.

It is, of course, welcome news that the President now understands there is a real problem here. Too bad he didn’t come to that realization months ago.

Tags: Henry Paulson, hillary clinton, president bush, subprime mortgage

This is a story–don’t worry, it will be a short story–about how the current subprime mortgage/credit crisis has actually shot down an entire airline and how this may just be the canary in the coal mine.

The all-business class airline, Maxjet Airways, based in Dulles, gave an extraordinary Christmas gift to its loyal customers: It filed for bankruptcy, ceased to fly and left its customers virtually stranded in London,New York,Las Vegas and Los Angeles. That’s the holiday spirit for you.

Maxjet, mind you, was no American or United Airlines–it actually served food!!–and has been struggling since its inception in 2005.

In my professional role as news reporter, I went out to LAX this afternoon to check things out only to find that Maxjet literally vanished into thin air…well, in L.A. I guess it’s more like thick air.

What was its ticket counter at the Bradley International Terminal was no more; not even a sign telling of its demise. Strangely, the departure sign overhead still listed its 4:50pm flight to England as being “on time.”

Now by this time, you may be thinking, What does all this have to do with the subprime mortgage crisis and why am I reading about an airline on a real estate investing website?

Here’s why:

The company blamed two things as the main reasons the airline folded its wings: the rising cost of jet fuel, and the inability to get more credit to keep its planes flying.

Bingo!

The “credit crunch” as Maxjet put it, is the direct result of the now global, U.S. caused subprime mortgage disaster. The ripple effects from the housing crisis are fast becoming large,crashing waves.

The world’s economy is so interconnected nowadays, that if you drop your ATM card by accident in Chicago, a bank customer in Laos will get hit with the bill for the replacement card.

The credit crisis–which is pretty much what the mortgage debacle has become–is now sapping the strength from businesses entirely unrelated to real estate.

It’s not money, in the 21st century, that makes the world go round, it’s credit. And, as credit stops flowing, the world’s economy –the ENTIRE economy suffers. That is what we are seeing here with the end of Maxjet Airways. A victim of our time and a victim of someone’s unpaid mortgage in Kansas City.

Tags: bankruptcy, christmas, credit crisis, kansas city, maxjet, subprime mortgage