Remove all of the shenanigans going on to try an prop up the illusion housing has stabilized and we would fall off a cliff. To recap what has gotten us to “stabilization”.
1. 1.25 trillion in Fed purchases of MBS
2. Government paying people 6k to 8k to buy a home
3. Suspension of FASB 157 allowing banks to cook their books and hold a years worth of foreclosed homes off the market.
So that is what it took to make this illusion of a housing market bottom. So where do we go from here? Its either flat or down, there is no up anywhere in the near future( 4 or more years). Why do I say this? Well, we have 17% unemployment. Lending standards far tighter then they were at the peak when everyone could be a buyer with 100% stated/stated down to 580 mid score.
The banks are so insolvent and know the exposure still in the RE market. This is the reason they only fund loans they can transfer the bulk of the risk to the tax payer (FM/FM/FHA) and make profit on the sale and servicing of the loans with reduced risk. There is very little in the way of Private Label Mortgage products since the RMBS market is dead an no one wants the risk to hold this stuff on their books.
Some basic numbers to consider.
1. ~11 trillion in outstanding residential mortgages
2. ~5.4 trillion held or backed by FM/FM
3. ~1 trillion second liens
4. ~6.2 trillion in lost equity in the last 3 years
That math does not look so good. The banks worldwide have written down 1.7 trillion in losses. This includes UK and EU so how much more do they need to realize? I estimate 1.5 to 2 trillion more. This makes them insolvent and not willing to take on any more RE risk. In the meantime they are desperately trying to reflate the housing bubble by holding properties off the market and create a supply(lack) side driven value bubble since these loses they need to realize are largely based upon RE values. It is not going to work since they do not have enough time to get this done. FDIC and FASB is already putting pressure on them to put back 157 and bring these losses on the books.
There is so much risk in the system since the government did not bring these failed companies in, whip out shareholders, clear the assets at true value and make bond holders as hole as possible. This is why the smart money does not trust this market, we never had a true bottom in RE when someone could say with confidence it was a bottom….and so we will take years to slog through this mess.
Whenever I think of the government and what it’s doing to the country, I just normally stop thinking about it altogether. It makes me sick to my stomach the kinds of things that have been happening to the economy that I’ve given up all hope for the Obama administration.
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Jeez!! Those numbers seem to keep growing!!
California business attorney