Bloomberg.com: News

Treasuries, Oil Surge May Foreshadow Bond Bear Market (Update1)

Yields on 10-year notes fell as low as 3.79 percent last week, within a third of a percentage point of the consumer price index. Every time inflation has exceeded what investors get paid to own Treasuries, bonds have plunged. That happened from August 1973 through August 1975, when Ford addressed the nation with his ``Whip Inflation Now'' speech, and from January 1979 to October 1980, the end of Jimmy Carter's term.
"The yield on the benchmark 4 1/4 percent note maturing in November 2017 was little changed today at 3.94 percent,"

Catching Knife in Sacramento Housing

Here's the potential loss you need to prepare for in order to speculate on Sacramento housing:

**GREAT CHANCE TO OWN A SPACIOUSE DREAM HOME**:
"$749900 **GREAT CHANCE TO OWN A SPACIOUSE DREAM HOME** Reply to: ryanschattner@gmail.com Date: 2007-11-15, 8:46AM PST Here is your chance. Large single story ideal for day to day living or elegant entertaining. Priv. bath for every bedroom. Spacious wet bar with wine cab. that looks into a large living area next to the kitchen. Large yard with plenty of room for pool. Motor court gives access to split 2car gr. *Bank Owned*

http://www.zillow.com/HomeDetails.htm?zprop=63421325
Sold 07/11/2007: $855,000

That means a loss of $100K+ in just 4 months. Assuming a down payment of $170K (I doubt it but just use it for the bottomline), that's 60% loss.

The Alarming Parallels Between 1929 and 2007 | The American Prospect

The Alarming Parallels Between 1929 and 2007 | The American Prospect:
"The most basic and alarming parallel is the creation of asset bubbles, in which the purveyors of securities use very high leverage; the securities are sold to the public or to specialized funds with underlying collateral of uncertain value; and financial middlemen extract exorbitant returns at the expense of the real economy. This was the essence of the abuse of public utilities stock pyramids in the 1920s, where multi-layered holding companies allowed securities to be watered down, to the point where the real collateral was worth just a few cents on the dollar, and returns were diverted from operating companies and ratepayers. This only became exposed when the bubble burst. As Warren Buffett famously put it, you never know who is swimming naked until the tide goes out."

Another FB Seeking Next Fool

Remember I told you that I like to sometimes cross-search on people looking for others to take over their money-sucking auto leases.
Here's another one. Suzy wants rent her Sacramento house (do I hear up-side down?) and at the same time trying to find someone to take over the $1350 per month payment on her 2007 HSE Range Rover.
Sorry but I really have a hard time containing my schadenfreude.

Location, Location, Location.....:
"$2400 / 5br - Location, Location, Location..... Reply to: suzyfrank0307@yahoo.com Date: 2007-10-01, 3:19PM PDT STUNNING LAKE COMMUNITY RENTAL!!!!!!! This beautifully decorated and spacious home features granite countertops and hard wood flooring throughout. It too has an enclosed office with french doors to include a large custom built 2 person desk with lots of cabinets and drawers for storage. This home has 4 (possibly 5) bedrooms/3 full baths, 3 car tandem garage + a huge bonus room that can be an additional master size bedroom or a playroom. This 3 year old home has a 26 jet hot tub, fully landscaped back yard with large trees for privacy, on the green belt, partial lake views, a dog run and is in a very quiet and family friendly neighborhood. Best of all...it is only 15 minutes from Downtown Sacramento, 20 minutes from Davis and 6 minutes to the nearest grocery store. ******Serious candidates only please!***** Lease to buy options are welcomed! Contact Suzy: (916) 214-4632"

2007 HSE Range Rover: "This gorgeous white HSE has only 7,300 miles. Has every ammenity imaginable to include Lo-Jack, dual tv's on the back of driver and passenger seats, 6 disc player, etc. All maintenance is included as well. I am looking for someone to take over the lease. I will forfit my deposit. The monthly payment is $1350 + tax. ******************Serious Applicants only PLEASE!************ Call Suzy (916) 214-4632; suzyfrank0307@yahoo.com"

**Sigh**! Another F**ked Borrower

The Modesto Bee | Housing prices continue to plummet

The Modesto Bee | Housing prices continue to plummet:

"# Stanislaus County homes sold for a median price of $324,500 in July, down $48,750 from last year and down $18,750 from June.
# San Joaquin County homes sold for a median $380,000 in July, down $60,000 from last year and down $16,000 from June.
# Merced County homes sold for a median $316,000 in July, down $53,000 from last year but up $26,000 from June."

Short Sale in San Jose Downtown

Found on Craigslist. Asking for $585K. Bought for $640,000 on 03/15/2006.

390 Meridian Ave, San Jose, CA 95126 3 beds, 2.5 baths, 1,696 sq ft

$585000 OPEN HOUSE - APPROVED SHORT SALE (san jose downtown)

---

OPEN HOUSE: Saturday June 16,2007 1-4 p.m.

This great end unit 2level Townhouse is priced 10k under market value. The lender has approved the short sale and is ready to move forward. $2300 Credit for Closing Cost.

FBs in Modesto

1198 Crescent Dr, Merced, CA 95348 3 beds, 2.5 baths

05/16/2007:	$313,000
06/28/2006:	$435,000

Loss: $122K (28%)

1157 Kay Cir, Turlock, CA 95382 4 beds, 3.0 baths, -- sq ft
Short-sale asking for $342,500
03/14/2006: $490,000
Loss:$148K(30%)

Short Sale in Milpitas

This short-sale is still for sale after 35 days. The specuvestor has lost close to $90K (13%) over 10 months. Nice!!

Price: $589,950
215 PARC PLACE DR
Milpitas, CA 95035
Beds: 3 On Redfin: 35 days
Baths: 3 Year Built: 2006
sqft: 1,280 Lot Size: -
$/Sqft: $461 MLS#: 724739
Status: Active on market
Last Sale: $679,500 (08/31/2006)

Townhomes a steal in Fort Myers

Townhomes a steal in Fort Myers | WINK-TV - Fort Myers, FL | Local & Florida:
"Fort Myers - You're not going to believe what some brand new townhomes went for on the auction block Thursday night in Fort Myers, considering where prices have been. A three bedroom townhome previously priced at $310,000 sold for about $180,000! First time home buyer Brandon Quarterman, a student at Florida Gulf Coast University, was the lucky bidder. He said, 'I'm feeling great. more money in my pocket!'"

Union City

It is getting more encouraging each day as I see more reduced listings on CL. It used to be more on the outskirt of BA but is slowly changing. This is one in Union City asking for $830,000. Decent 8 year old 2,300 sq ft home.

34225 ASPEN LOOP

UNION CITY, CA 94587

Open Sat/Sun 1-4 5 Bedroom PRICE REDUCED Great Location

Yep. You guessed it right. It was purchased on 06/14/2005 for $898,000. So in 2 years, this one has lost $68K.

Stockton is Crashing Hard

Found this short sale property on CL:

10437 Tank House Dr, Stockton, CA 95209 5 beds, 3.0 baths, 3,201 sq ft
Asking Price: $540K

"SELLERS ARE HIGHLY MOTIVATED!!!10437 Tank House Ct., Stockton, CA Great opportunity! 5 bedrooms, 3.5 baths, 3 car garage, cherry wood floors, plush carpets, custom paint, vaulted ceilings, jack & jill shower and jacuzzi tub in master suite, tile in bathrooms, landscaped backyard with water fountains,community pool, all in a gated community. Close to golf course and more!!"

Wanting to know how much the owner might have paid to end up in short sale, I went on Zillow.com and found this other home right next door with the same square footage.

10837 Tank House Dr, Stockton, CA 95209 4 beds, 2.5 baths, 3,160 sq ft

was sold on 09/20/2006 for $750,000. So for less than 9 months, it probably has lost $210K or roughly 30%. A-ha!!

Bad Weather Coming Home?

More flips in San Jose that show significant losses from 2006 and 2005

Price: $849,900 (loss of 200K)

380 VALLEY VIEW AVE San Jose, CA 95127

Beds:	4	On Redfin:	35 days
Baths:	2.5	Year Built:	1980
sqft:	1,981	Lot Size	22,651
$/Sqft:	$429	MLS#:	721510
Status:	Subject to inspection
Last Sale:	$1,050,000 (04/20/2006)

Price: $600,000 (loss of 150K)

321 N 9TH ST San Jose, CA 95112

Beds:	3	On Redfin:	81 days
Baths:	2	Year Built:	1920
sqft:	1,738	Lot Size:	6,098
$/Sqft:	$345	MLS#:	712021
Status:	Active on market
Last Sale:	$750,000 (09/26/2005)

Price: $590,000 (loss of 66K)

204 N 5TH ST, San Jose, CA 95112

Beds:	3	On Redfin:	51 days
Baths:	2	Year Built:	1920
sqft:	1,532	Lot Size:	-
$/Sqft:	$385	MLS#:	718401
Status:	Active on market
Last Sale:	$656,000 (06/27/2006)

Price: $588,000 (loss of 142K)

438 N 7TH ST, San Jose, CA 95112

Beds:	2	On Redfin:	29 days
Baths:	1.5	Year Built:	1908
sqft:	864	Lot Size:	4,658
$/Sqft:	$681	MLS#:	723161
Status:	Subject to inspection
Last Sale:	$730,000 (08/26/2005)

Flip in Mountain View Gone Bad

Having heard some many people said Mountain View is prime because lots of Googlers want to have homes nearby, it is quite refreshing to find an example to show that the market is not going up, NOT even in Mountain View.

Redfin - Find San Francisco Bay Area Real Estate:
"Price: $1,525,000
Redfin Savings: $30,500
1 of 6
1178 BONITA AVE
Mountain View, CA 94040
Beds: 4 On Redfin: 43 days
Baths: 3 Year Built: 2007
sqft: 2,000 Lot Size: -
$/Sqft: $763 MLS#: 718771
Status: Active on market
Last Sale: $1,625,000 (12/21/2005)"

How much is it EXACTLY????

Another example why one has to be extra cautious in buying things from Craigslist, regardless if it is a microwave oven or a house.
Just look at this listing on CL asking for $729K
3bd/1bth -Updated throughout, in a great Cul-de-Sac location...REDUCED
It is $599K on redfin.com
Also, according to zillow.com it was bought with $600K on 12/28/2006. Not good for the flipper.

50% off and No Buyer

No Housing Bubble Posts

Why there is no housing bubble - Jubak's Journal - MSN Money:
"The sky is not falling. Yes, home prices are sky-high, but we really don't have a housing bubble that is anywhere near bursting. Here's why."

Bernanke: There's No Housing Bubble to Go Bust:
"Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve."

Bubble won't burst / Study finds Bay Area housing prices in line with economic growth:
"The recent, rapid price increases stem not from a speculative frenzy but from basic economic factors, including low interest rates, strong income growth and abnormally low prices in the mid-1990s, said researchers at Columbia University and the University of Pennsylvania's Wharton School.

'The bubble fears are over people paying money for housing today because they're expecting unreasonable (price increases),' said Todd Sinai, associate professor of real estate at the Wharton School. 'Our calculation says that if people are expecting something reasonable, house prices today are justified -- and they are in San Francisco.'"

2 bath Single story, completely remodeled house

2 bath Single story, completely remodeled house:

"Completely remodeled for sale, but changed mind, now available for rent
Spacious (1650 sq ft) 3 Bedroom, 2 Bath single story detached house."

Hmm... I wonder why?
One guess would be after all the remodeling (lipstick on the pig) it is still not selling. But again that remains my pessimistic thinking. :P

A Number Of Notable Reductions (For One Reason Or Another) at SocketSite™

Even though this might just be a blip in the overall market direction, but it is still quite nice to see some reversal to sanity.

A Number Of Notable Reductions (For One Reason Or Another) at SocketSite™:

745 Detroit: Master Bath (Image Source:residentphotography.com)

After just over a month on the market, three recent reductions caught our attention (for one reason or another):

1. 745 Detroit was reduced $105,000 (6.2%)
2. 3840 Market Street #301 was reduced $200,000 (12.1%), and
3. 20 Villa Terrace was reduced $780,010 (31.2%)

The reasons? The great (and sometimes not so great) neighborhood debate, an agent owner, and just one honkin big reduction. Yes, in that order.

∙ Listing: 745 Detroit (3/2.5) - $1,595,000 [Sotheby’s]
∙ Listing: 3840 Market Street #301 (3/2.5) - $1,450,000 [MLS]
∙ Listing: 20 Villa Terrace (4/3.5) - $1,719,990 [MLS]
∙ Not Just Cool But “Uber Cool” In Sunnyside [SocketSite]"

Poor Investment

Just assuming $1,000 for each of the two 1/1, this property takes in a gross income of $24,000, which is only 4% and that is before all the property taxes and maintenance.
I just cannot understand how this can be a good investment.

$590000 REDUCED PRICE San Jose DUPLEX (san jose downtown)

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REDUCED PRICE: Downtown SJ Duplex for SALE!!! OPEN HOUSE THIS WEEKEND SATURDAY 10AM-1PM.

Great Starter Duplex with room to expand!!!: Two 1Bedroom/1Bathroom units. 1,248 sq ft living are, 3,049 sq ft lot. Very well maintained and easy to rent. MOTIVATED SELLERS, This is a Short Sale Subject to Bank Approval.

Unit #1: Granite Counter-tops and Cherry wood cabinets, new kitchen appliances, new pergo flooring, recessed lighting throughout and much more!

Unit #2: Tile Floors throughout.

Laundry Facility, parking.
Close to SJSU and Downtown SJ.

Currently rented out, DO NOT DISTURB THE TENANTS.
N. 10th St at Saint John St.

It's Coming Home to Milpitas

The number of "reduced" listings on CL has been climbing over the last few weeks in the middle of the supposedly "Spring Bounce". Unlike those in the earlier these months, I start to notice some newer homes in Milpitas fall into this search criteria.

Here were two that caught my eyes today:
#1 434 Moretti Ln, Milpitas, CA 95035 3 beds, 3.0 baths, 1,550 sq ft
For sale on CL: $718,888 (LOL! I wonder which ethnic group this price is targeted to)
Zestimate: $750K.

Sale History
11/18/2004:	$615,000

So it still shows a couple of percentage gain after commission over but is far less than the common mythical double digit gain of south bay.

Condo Flipping in San Jose

Just saw this one-bedroom condo for sale at $349K on CL.
Looks like yet another flipper upside down.

$349000 1-Bedroom Condo for sale (Reduced Price) (san jose downtown)

---

Reply to: hous-326361900@craigslist.org
Date: 2007-05-07, 4:17PM PDT


I am looking to sell my beautiful one-bedroom condo located in Downtown San Jose. If you are interesed, please contact Billy @ 408-605-0949 or you can email me at billysmb24@yahoo.com. Following is a description of the condo.

Beautiful, Upscale, 1Bedroom/1Bathroom. The unit is located on the first floor (667 square feet). Located 1.25 miles from the heart of Downtown San Jose. Minutes from SJ Japan town, Tech Museum, HP Pavilion, Diridon station, San Pedro Square, and San Jose State. Less than 1/2 mile away from Highways: 280, 101, 87. Excellent Location!!! See the official listing @ http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=710480&type=property&name=

I'm available to show the condo on Sunday's between 1 and 3pm.

Recorded transactions show that similar units were sold at

	Address	Zestimate						Sold on
	1060 S 3rd St #285	$369,663						10/27/2006
	1060 S 3rd St #386	$354,591						07/20/2006

Securitizers Who Made Housing Bubbles Now Hide Big Losses

This article appears in the May 4, 2007 issue of Executive Intelligence Review.

BAILOUT, OR REGULATED WRITEDOWN?

Securitizers Who Made Housing Bubbles Now Hide Big Losses

by Paul Gallagher

The Spring months are likely to see extremely large securities losses breaking out in "mortgage-backed securities" (MBS) which have been the international banks' essential tool in creating the now-exploding U.S. and other housing bubbles. These losses, which various investment bank reports are now estimating at up to $100 billion, may, in fact, become much larger than that, as the fall in home prices accelerates. They will hit those banks, and commercial banks as well, exposing how worthless are the large part of their assets which are based on the mortgage bubbles.

Since 2005, two-thirds of all mortgages have been "securitized"—sold by the lending companies to investment banks, which in turn package and sell them as high-profit securities, building a huge mortgage bubble over $15 trillion. In 2006, one-quarter of all the U.S. banking system's $12 trillion in assets were based on residential real-estate mortgages and residential MBS, the bubble which is now blowing out.

House and Senate hearings and emergency Federal regulators' meetings in the third week of April, showed that while, on the one hand, Congressional committees are slowly working toward legislation that could rein in and force a writedown of the $6 trillion-plus MBS; on the other hand, the Federal Reserve and accomplices are moving for a rapid bailout of the same banks and financial corporations, using huge amounts of Federal credit.

Unless the banks, their hedge funds, and other financial corporations are made to write down and reorganize their books full of these bankrupt assets, any Federal attempt to intervene in the worsening mortgage foreclosure crisis, with new Federal (or state) mortgage credit, will throw hundreds of billions down a bailout hole, without stopping the mortgage bubble collapse. If that writedown and reorganization is forced on the banks and MBS market players, the collapsed bubble of housing-financial assets can be replaced by new Federal credit for modern infrastructure—and for new housing.

Economist and Democratic leader Lyndon LaRouche said on April 22, "The only thing to do is to freeze all the problem mortgages and to stop the foreclosures (see Box). We have to prevent massive evictions. If what I propose is not done, we are entering a phase in which what is occurring will blow out the entire financial system." LaRouche said that even hundreds of billions of dollars of bailouts would not be sufficient to the real scope of the problem.

Thin Wall Holding Back Sea of Losses

Bloomberg news service on April 24 reported a Merrill Lynch estimate that the MBS of 2006, the most hyperinflated bubble year, have now sunk in trading value by up to 37%. The large bond fund Pacific Investment Management (PIMCO) estimated losses at about $75 billion as of late April. A New York Times column April 21 reported Lehman Brothers' estimate that MBS securities losses so far are $20 billion, but will rise during 2007 to 11-13% of the entire outstanding volume of "subprime" mortgages, which is over $1.5 trillion.

These losses are broadly hidden because securitization has completely atomized much of the $16 trillion of U.S. mortgage debt—it is extremely difficult to determine who owns it!—and because the only real "regulators" of the MBS markets are the credit rating agencies like Moody's and Standard and Poor's. The hedge funds, banks, and other funds holding these securities will not book the losses unless they sell their MBS, or the rating agencies "officially" downgrade them. The rating agencies thus far have obliged the banks; no MBS have been downgraded, although trading deep in the red. This thin wall will collapse soon, and the crash will be on, as the fall in home prices nationwide gets serious.

The real plunges in market value of homes, are still to come in future months. The National Association of Realtors ruefully reported on April 24 that March's U.S. existing-home sales fell by 8.4% from February (the largest month-to-month drop since 1989), and are down 11.3% from March 2006. The median existing-home price in March was still only 0.3% below March 2006, and 0.9% below for single-family homes. But the separate Schiller/Case home sales report, says that March prices in the 20 largest metro-area markets, were 1.5% down from March 2006; the unsold inventory of homes rose from 6.8 to 7.3 months, and over eight months for new homes. "No bottom in sight for the housing market," was one S&P analyst's response to the unexpectedly large drop.

Bernanke's Fed Wants a Bailout

Beginning April 16, there was an intense week of panicked private and public meetings. On that day, a seven-hour meeting was held behind closed doors, at the Washington, D.C., headquarters of the Federal Deposit Insurance Coporation (FDIC), involving the heads of the FDIC, Fannie Mae, Freddie Mac, Fed officials, and representatives of banks, lending institutions, and consumer groups. According to statements released afterward, those at the meeting "agreed on a goal of keeping deserving borrowers with high-risk mortgages in their homes."

On April 17, the Federal Reserve Board of Governors released a statement, entitled "Statement on Working with Mortgage Borrowers," signed by the Fed, the U.S. Department of Housing and Urban Development (HUD), the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. It read in part: "The Federal financial institutions' regulatory agencies encourage financial institutions to work constructively with residential borrowers who are financially unable to meet their contractual payment obligations on their home loans.... Many residential borrowers may face significant payment increases when their adjustable rate mortgage (ARM) loans reset in the coming months. These borrowers may not have sufficient financial capacity to service a higher debt load, especially if they were qualified based on a low introductory payment.... The [supervisory] agencies will ... not penalize financial institutions that pursue reasonable workout arrangements with borrowers who have encountered financial problems. Further, existing supervisory guidance and applicable accounting standards do not require institutions to immediately foreclose on the collateral underlying a loan when the borrower exhibits repayment difficulties" (emphasis added).

The highlighted sentence will be remembered from the 1989-92 period, when in 1991, the Federal Reserve and other regulatory agencies issued a directive to bank examiners that urged "leniency" and "wide discretion" in deciding what a bad loan is. An emergency meeting was held Nov. 7, 1991, in Baltimore, Md., to emphasize that point. At that moment, Citibank, America's largest bank, and other banks, had their books full of bad loans, and were hanging by a thread. The Fed feared a strict interpretation would push Citibank et al. over the edge.

Also on April 17, a "wall of money" policy began to emerge. Daniel H. Mudd, the chief executive officer of Fannie Mae, testified before the House Financial Services Committee, that Fannie Mae was altering its lending standards so that it "could help the subprime market through this turmoil," adding, "We are concerned about a liquidity crunch in the subprime segment." Mudd announced that Fannie Mae, the giant secondary housing market agency, was starting a new program, "Operation Home Stay," that would funnel funds into the subprime market.

While Mudd did not give a funding figure, Freddie Mac, the other giant secondary housing market agency testifying to the House committee April 17, announced the next day, that it will commit $20 billion to buy fixed-rate and adjustable rate mortgage (ARM) products, in an effort to provide mortgage-lending institutions with more "choices" to offer subprime lenders. Also, on April 18, the Seattle-based Washington Mutual, one of the nation's largest mortgage lenders, announced a $2 billion program; Citigroup Inc. and Bank of America Corp. announced that they will provide $1 billion each in mortgage refinancing,

Thus, in a 96-hour period, the Federal Reserve and Plunge Protection Team had organized Fannie Mae, Freddie Mac, and the large money center banks to commit to perhaps $30-45 billion. This sum is between seven and ten times the size of the bailout that the Fed organized in September 1998, to save the LTCM hedge fund. Their interest is the same this time: to save their bankrupted system.

The investment banks, hedge funds, mutual funds, and pension funds that hold these MBS are going to keep those losses undeclared as long as they can, while waiting for a Federally sponsored bailout—through sales of new MBS by Fannie, Freddie, and FHA—to put a floor under the prices of those securities.

MBS and Foreclosures

The mortgage-crisis legislation which Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has, so far, only threatened to introduce, takes a first swipe at the core of the problem—it would force mortgage-backed securities (MBS) holders to "take a haircut" by making them liable for the underlying problems in the mortgages they discounted.

In this context Frank's bill is being attacked on Wall Street speculators' more extreme websites—like Minyanville, run by former Drexel and Lehman traders: "The legislation proposed by Barney Frank is dangerous: It will punish investors that have absolutely no control over what goes into the mortgage pool.... How can they analyze the appropriateness of the purchase to the homebuyers? They cannot.... Buyers of mortgage-backed securities will require a higher rate of return from borrowers to be compensated for extra costs which Mr. Frank's proposed legislation would bring. This will raise the banks' financing costs and thus raise the cost of credit to all mortgage borrowers. Actually this legislation would spill over across the whole economy, as credit cards, auto, and other consumer loans are securitized as well. Securitization oils the wheels of capitalism and provides a needed liquidity for the U.S. financial system; take it away and liquidity in the system will dry up."

The House and Senate committee hearings on the mortgage crisis on April 17 established clearly, even from the very reluctant head of FDIC, Sheila Bair, that the securitizers—the MBS issuers and holders—alone, have a self-serving interest in mass foreclosures, all across the "exploded" subprime and Alt-A mortgage markets. Foreclosures—even if they result only in the repurchase of the home by the originating mortgage lenders or builders, for a low price, or in a "short sale"—provide cash flow to pay off the multiple tranches of the MBS. The market prices of the foreclosed homes are still above their prices in 2004-05 when the huge volume of the ARMs, subprimes, etc., peaked, so for now, most tranches will be paid off in a foreclosure wave. The substantial prepayment penalties of homeowners who get even part of their mortgages paid off by a forced "short sale" provide more MBS cash flow. The MBS holders' securities contracts allow them to demand that the mortgage-originating lenders and servicing banks pay the securities where the mortgagee payments have disappeared—until, that is, these mortgage lenders disappear, as some 50 have already.

The huge flows from these funds, banks, and foreign central banks into MBS is what drove up both prices, and effective mortgage interest rates (that is, very big, and ostensibly very profitable mortgages) since 2000, to the point that 1) tens of millions of "homeowners," including speculative "homeowners," had acquired mortgages they couldn't actually pay without continued home-price escalation, and 2) the MBS holders were "covered" and "hedged" for levels of delinquencies, defaults, and foreclosures which, as one witness told the Senate, would ruin a lending bank both financially and in reputation.

The MBS-investing banks and funds are separated by a multi-layered process of securitization, from the mortgages themselves, whose cash flow, penalties, charges, etc., they own. Known as "holders in due course," they are legally protected from changes in the mortgages made by renegotiations or refinancings, and legally untouched by any degree of fraud or underlying lack of soundness exposed in the mortgages. This was detailed in very useful testimony to the Senate Banking Committee on April 17 by Prof. Kurt Eggers of University of California at Orange.

Under the regime of "securitization," millions have gotten mortgages through mortgage brokers who were paid "yield spread premiums" to place them in higher-interest loans than they qualified for! Under the securitization regime, home appraisers were paid for bigger and bigger overassessments, and cut off from work by banks and brokers if they insisted on maintaining honest assessments. Under the regime of securitization by MBS, big builders and lenders, like Beazer Homes and JP Morgan Chase, planted virtual "large-scale foreclosure farms" under the guise of new starter-home subdivisions.

All of the House Federal witnesses, including CEOs of Fannie and Freddie, heads of FHA and FDIC, told the committee that as far as homeowners refinancing and renegotiating MBS-securitized mortgages, "Forget it—those loans are wrapped, sealed, and gone."

With the housing bubble now shrinking, the Mortgage Bankers Association's Douglas Duncan is forecasting that total mortgage originations for 2007 will be at only about $2 trillion—below the 2001 level, and more than 50% below the level of 2006. Wells Fargo bank—the nation's largest mortgage-servicing bank—just issued new figures revising the value of its residential loan-servicing portfolio downward by $100 billion, or about 7%. Of the six biggest mortgage-servicing financial corporations, all except JP Morgan—that is, Wells Fargo, Countrywide, Bank of America, Citigroup, and ResCap/GMAC—have reported substantial drops in the volume of the mortgages they are servicing (i.e., collecting and transferring payments). This was reported by MortgageDaily.com on April 21.

Under rapid price shrinkage, even the MBS holders take large, disorderly losses eventually; and even the bailouts announced by Freddie and Fannie don't work. Without a banking-asset reorganization, they are throwing away tens of billions of Federal dollars and credit into a futile attempt to stop mass foreclosures, and prop up the falling prices of the collapsing $20 trillion housing bubble.

Rivermark Falling

Just when the subprime meltdown is in the progress, I am busy looking for a 3 bedroom to rent. I live near Rivermark, the very much hyped in development in Santa Clara,CA where a 3/2 1,700 sq ft. single house with virtual no lot can cost $800K. While checking on a couple of rentals in the area, I noticed a few sales in Feb are indeed losses.
1.
4428 Watson Cir, Santa Clara, CA 95054 3 beds, 2.5 baths, 2,036 sq ft
Sale History
02/16/2007: $980,000
06/24/2005: $1,026,000
With a 3% commission, the flipper has lost $106K or 10% of the investment

2.
4169 Tobin Cir, Santa Clara, CA 95054 4 beds, 2.5 baths, 2,036 sq ft
Sale History
01/11/2007: $950,000
07/15/2005: $960,000
03/21/2003: $643,500
This one lost $67K or 7%, which is less than the previous one sold in Feb

3.
4166 Marston Ln, Santa Clara, CA 95054 3 beds, 2.5 baths, 1,671 sq ft
Sale History
02/23/2007: $865,000
07/18/2005: $898,000
This one also lost $86K or 9.5%.

4.
4456 Headen Way, Santa Clara, CA 95054 3 beds, 2.5 baths, 1,907 sq ft$893,000, 3 bdrms, 1907 sq. ft.,

Sale History
03/13/2007:	$893,000
03/30/2006:	$900,000

Loss of 61K or 6.8% of investment over 1 year.