Lunchtime Links 3-10
Obama foreclosure prevention plan lagging, new data shows (Nasiripour, HuffPo) More great work from Shahien….it appears someone on the Congressional Oversight Panel shared a letter written to them by Geithner in which the Treasury Secretary outlines the latest HAMP data. It doesn’t look good and just provides more evidence that only mods that reduce principal will work over time. As noted yesterday, it’s a very expensive proposition….see next link.
Second-lien writedowns (Konzcal) For the uninitiated, a second-lien loan on a house is one that’s junior to the first lien. For instance you take out a first mortgage to cover 80% of the cost of a new home (first lien) and supplement it with a second mortgage for the remaining 20% (second lien). The second lien is second because it is junior in terms of repayment. If the house’s value falls 20%, then the second lien is…theoretically…totally wiped out before the first lien loses a cent. The scary data is how deep underwater some homeowners with two mortgages are. Loans like option ARMs that allowed a minimum payment with unpaid interest added to the mortgage principal show that some now have mortgage debt equal to 169% of the current value of the home. In other words their mortgage is 69% larger than their home’s value.
PDF — Gensler speech on OTC derivative regulation reform (CFTC) One of our favorite regulators yesterday spoke out about the need for tighter derivatives regulation.
Must Read from 1977 — How inflation swindles the equity investor (Warren Buffett, ht Nick Gogerty) I’ve argued in this space against the conventional wisdom that inflation is good for stocks. Even if earnings are rising, the multiple at which they are capitalized compresses dramatically. Buffett offers much more on the topic. A long piece, but very good.
Can California declare bankruptcy? (Beam, Slate) The answer is no according to Beam, since there’s no part of the bankruptcy code that covers states. He says banks could theoretically end up in some kind of federally-sponsored receivership. Interesting thoughts to kick off a discussion.
Team Obama propoganda push reaches fever pitch (NakedCapitalism) Yves writes disapprovingly of recent articles profiling Tim Geithner, who says his bailouts worked to save the financial system. Sure, the bailouts prevented a steep decline in the short-run, but at the cost of a steeper decline later. The one place Geithner deserves credit is the stress test. He did force banks to raise more capital. He didn’t, however, force them to raise enough. Not when you look at the second-liens on their books!
China property price jump, highlighting bubble risk (Wong, Bloomberg)
Academy award winning movie trailer (YouTube) Hilarious.
Alpert on housing (ht Ed Harrison)….last bit is Dan