Wall Street Firms Concoct Bond Backed By Home Rental Income

Like a moth to a flame, Wall Street has returned to creating dodgy real estate securities. In this case, Blackstone and Deutsche Bank are about to market a bond backed by home rental income. However, as the Financial Times reported, the two firms are not packaging Manhattan residential building income. Rather, they are using rental income from foreclosed homes Blackstone and others purchased for pennies on the dollar and transformed into "affordable" housing, often marketed to those who lost homes via the rancid, corrupt foreclosure process.

Blackstone has been a major player in the foreclosure/rental market. The general sense was that Blackstone would rent the homes and sell them for enormous profit when real estate "recovered." In the meantime, Blackstone and Deutsche Bank can leverage their property ownership into funky securities. One catch in the process is the need for a credit agency to provide appropriate blessing to the bonds. Apparently, and unsurprisingly, one such firm has been found.

Let's see if federal regulatory agencies, which have essentially played matador to Wall Street's bulls, ask questions about this new scheme.

Wells Fargo Announces More Layoffs In Its Mortgage Department

The residential housing market drumbeat has begun again. Rising housing prices are depicted as "proof" that residential real estate market, with its odious bidding wars, has recovered its animal spirits. Foreclosures, still very much a fact of life in many parts of the United States, are conveniently ignored. Instead, the focus is on rising prices, as if this event were in and of itself the greatest possible good our Federal Reserve-subsidized economy can generate.

A look behind the "good news" curtain offers a different perspective. Late last week, Wells Fargo announced it was laying off 1,800 employees in its mortgage division, according to an Associated Press story appearing in the Mercury News. The reason? Fewer people are refinancing their homes. This is a curious situation, given the attractive, low interest rates currently available.

Something doesn't quite connect here.

Average Silicon Valley House Costs $1 Million

A story in today's Mercury News notes that the average price of a Santa Clara County home now costs a cool million dollars. The county is the heart of Silicon Valley and its legion of tech zillionaires. The area now rivals the moated areas of Manhattan and Miami Beach as among the country's most expensive residential real estate.

As for the other 99% of Americans, well...there's always $11 per hour jobs "middle class" jobs at Amazon warehouses.

Housing Bubble Worries Start to Bubble Up

Housing has become a significant part of the action in the recent, Fed-stimulated economic recovery. The happy talk around the upswing features cheerful notes about increased home values and multiple bids. However, some wise heads are considering whether this so-called recovery is in fact becoming a housing bubble. According to a story in bloomberg.com, "investors" are fueling the housing market, rather than single-family home owners. These players include deep-pocketed firms such as Blackstone, which purchase foreclosed homes on the cheap and transform them into rentals. The dirty secret in this arrangement is that rents in these homes turn out to be higher than the mortgage payments the homes' former owners could not afford to make.

The Bloomberg article cited a Wells Fargo housing analyst's view of the market. Investors, the expert noted, "are buying properties as quickly as they can and when they leave, housing will take a hit. Investors accounted for 19 percent of sales in the U.S. in March and even more in some former bubble markets, according to the National Association of Realtors." Guess who will take the fall when the next bubble bursts?

Fraud Rap Nails WaMu Mortgage Banker

When I visited Seattle earlier this year, I walked past Washington Mutual's former headquarters. If I had stopped ten people on the street that day, and asked them about WaMu, they might have suspected I was inquiring about an exotic pharmaceutical substance.

WaMu's ad campaign slogan, circa 2008

Ah, how quickly we forget the good old days of mortgage fraud, of which Washington Mutual was a major player. Just to refresh your memory, it was a half-decade ago when the housing market was characterized as "frothy," when the Liars Club known as the National Association of Realtors described annual housing price increases as "inevitable," and when wink-and-nod mortgage applications were disturbingly routine. As we now know, the housing market of cards collapsed under the weight of its own corruption. The WaMu bank failure was arguably the greatest single bank failure in American history.We also know very, very few people -- and no principal perpetrators of the disaster -- were brought to justice.

Recently, a WaMu sales executive, working at the bank's subprime lending unit Long Beach Mortgage,  took the fall for fraud. According to the Seattle Times, this was not an easy prosecutorial feat. "It took," the paper reported, "four years, two trials, and one unsuccessful prosecutorial appeal to a higher court" to finally nail the crooked suit.

The corruption, of course, went far further than one fallen angel. As the Seattle Times story noted, "In one WaMu email cited by U.S. Sen. Carl Levin, D-Mich., an internal 2005 audit found that 83 percent of loans approved by the bank's Montebello, Calif. office were fraudulent." WaMu's senior management remains free to this day. They had no idea there was gambling going on in the casino. Sure.

Facebook's Mark Zuckerberg Gets 1.05% Home Mortgage

What is the interest rate on your mortgage? If you signed off on a two percent mortgage, you would be thrilled at your deal. Yet, you would still be paying 95 basis points above the deal that Facebook's Mark Zuckerberg scored recently.

The tech world's wunderkind, according to a story in the Mercury News, refinanced his Palo Alto digs with "a 1.05 percent adjustable rate mortgage on a loan of $5.95 million"from First Republic Bank.

It's the closest thing to free cash that money can buy. If you're Zuckerberg, what's not to like about that deal?

Investors Target Oakland Foreclosures as Rental "Opportunities"

A Church in West Oakland

Oakland, California has experienced more than its fair share of foreclosures since the US housing market bubble popped a few years ago. Recently, investors have been purchasing foreclosed homes in the city's tough western neighborhood. What's interesting is that the homes' new owners are not reselling the homes. Instead, according to a story in today's online edition of sfgate.com, the houses are being rented.

The catch in the story is that the rents are more than the former owners' mortgage monthly mortgage payments. (I don't know the profit margin on that type of transaction.) The higher rent scenario would logically shut out the previous residents from returning to their homes. Who is moving in? The likely suspects are those people who can barely afford a broom closet in San Francisco, where the rents are at Manhattan levels. They are now the spearhead of the gentrification of certain West Oakland blocks, an inconceivable thought only a few years ago.

Unstated in the sfgate.com piece is where the uprooted families go. I suspect that, if it were up to the investors, the dispossessed would simply disappear.

Whistleblower at CBO Fights Conspiracy of Silence About Still-Funky Housing Markets

Lan Pham

The corruption of the mortgage and housing markets formed the core of the financial disaster that exploded in 2008 and remain a significant debilitating element in the world economy. The United States government, the banking industry, and the mortgage crowd have made halfhearted attempts to clean up robosignings and other illegal industry practices. However, their efforts have been marred by servicers' unwillingness to modify their own sleazy business habits.

To perpetuate this financial fantasyland, statistics must be "managed" so that the public imagines that happy housing days are here again. Rain cannot be permitted to fall on this parade. Consequently, whistle blowers in the stat houses are especially unwelcome; a Mafia-like spirit of omerta is encouraged in stat land.

The tale of Dr. Lan Pham is a case in point. She worked for the Congressional Budget Office (CBO) for a few months and made the fatal career mistake of telling the truth when the institutional fix was in for a "controlled" version of events. According to a recent Wall Street Journal story, Pham alleges was fired for releasing "pessimistic outlooks for the banking and housing sectors in 2010." The article also notes Pham also alleges that "supervisors stifled opinions that contradicted economic fixes endorsed by some on Wall Street, including research from a Morgan Stanley economist who served as a CBO adviser."

This story, is true in detail, would suggest the corruption at the heart of the housing catastrophe is still very much with us. It's especially depressing news as the CBO has a reputation for political impartiality, a quality desperately needed today.

The entire story is available in the financial blog zerohedge.com.

US Debt to GDP ratio passes 100%

In a dispiriting sign of the times, today marks the date when US government debt passed American GDP.  The story, noted in the financial blog Zero Hedge, includes a graph on the sovereign entities buying our nation's debt (hint: it's not the People's Republic of China.)

It is incredible to think that the United States now sells more more federal debt instruments than economic production can cover. What's more disturbing is that there is no sign whatsoever that this grim trend will slow down, flatten, or reverse its slope. The train will keep on rolling, until it becomes a train wreck.

Fannie Mae's Washington, DC headquarters

In a related story, the Washington Post noted details about a federal agency's plan to scale back Fannie Mae and Freddie Mac. This development, treated as a ho-hum article, was literally unthinkable a decade ago, even by the most ardent GOP congressman. Now, the twin housing behemoths are symbols of the housing disaster, a calamity whose ripples Americans are just starting to really feel. Yet this home-grown financial Pearl Harbor, more than any other episode during the disastrous first decade of the 21st Century, has shamefully brought our country to its knees.

Of course, if you count purchases of cell phones, tablets, and drones, we're doing just great.

CalPERS and Other Large Players Settle Suit Against Countrywide and Bank of America

Angelo Mozilo

Remember Countrywide Financial? If you suffered through the prospect or reality of a foreclosed home, the words are chilling ones. Since the collapse of the corrupt housing market in 2008, Countrywide (now called Countrywide Mortgage) and its current owner, Bank of America, have tried to get out from key lawsuits against them.

They appear to have succeeded recently against a well-funded, determined adversary. The LA Times reported today that CalPERS, the Golden State's powerful pension arm, along with other large institutional investors, quietly settled their litigation against Countrywide and BofA. The confidential nature of the settlement means the public has no idea how much the defendants ponied up to satisfy CalPERS and the other litigants. BofA's 4th quarter SEC filing might offer a hint; then again, maybe not.

What is clear is that Countrywide's former chief executive and the face of the foreclosure scandal, Angelo Mozilo, walks free to this day. Meanwhile, those who are financially chained or ruined by the foreclosure disaster do not.

Meanwhile, The New York Times published an interesting look at the interplay of a federal bank regulator and IndyMac, one of the financial firms that formed the housing debacle's Ground Zero. The excellent story was co-authored by Gretchen Morgenson. She is of the few mainstream reporters willing to take on complex financial topics and the combined muscle of Major League Finance and the Feds.

Spike in Number of Californians Entering Foreclosure

Every time the toms-toms are beaten to declare that the US economy is wonderful again, an unwelcome guest appears. This week's entrant comes from the Golden State. According to an LA Times report, the number of Californians receiving a notice of default -- the first step in the foreclosure process -- increased roughly 25% over the previous quarter. That's not good news, as filings had reached a three-year low earlier this year.

Beyond the percentages, the actual number of foreclosures is daunting. Over 70,000 notices were sent out to delinquent mortgage holders in the past three months. Some home owners have more than one mortgage, which would suggest they are profoundly underwater.

At some point, the country (not only politicians) will have to wake up and smell this unpleasant brand of coffee. The US economy, with the housing market at its core, cannot advance until the foreclosure catastrophe is honestly faced. That event has not yet happened, and few have possessed the will to address the housing disaster in a sensible way. It's a financial time bomb that keeps on ticking.

MERS' Role in Nation's Foreclosure Scandal

The latest salvo in the scandal that won't go away appears courtesy of Wall Street scourge Gretchen Morgenson and her New York Times colleague Michael Powell (presumably no relation to the former FCC chairman).

A piece in today's Times discusses MERS, an acronym for Mortgage Electronic Registration Systems. The firm's principal significance is that, according to the Times article, its "private mortgage registry has all but replaced the nation's public land ownership records." Most major real estate loan servicers and providers used MERS for record keeping, on the theory that "efficient" electronic, privately-managed "data" would prove superior to the old-fashioned paper documentation county bureaucracies provided.

How did that proposition shake out? Click on the Times story here for the details. I'll give you a hint: how many vice presidents does it take to operate MERS? If you guessed "thousands," you're on the right track.

Hats off to Morgenson and Powell for attempting to shed light on this issue. It's essential reading in any attempt to understand the American housing catastrophe, and the exponential growth of corruption in our society.

The Pittsburgh House That Vanished

The Pittsburgh Tribune-Review published an article in today's edition about a house that vanished.

Andre Hall, a 40-year-old Pittsburgh resident, recently purchased a home for $31,000. He did a bit of work on the structure, then Hall went away for a week during the year-end holidays. Upon his return, Hall was astonished to discover his new house had disappeared. In its place was a vacant lot. At this point, the story skips to Pittsburgh's Bureau of Building Inspections, responsible for approving demolitions and other property "improvements." So what happened? Well, the bureau's acting chief dryly noted "a couple of things went awry" in l'affaire Hall. One could safely say that a home that vanishes without the knowledge or agreement of its owner is certainly something that "went awry."

The bureau eventually washed its hands of the incident. That has left Hall to legally confront the bureau-hired contractor that allegedly demolished his home as well as the house next to Hall's. The story has the potential to ramble for years toward its destined end.

Meanwhile, one can feast on the speculation this story generates. How did Hall react when he saw that his house had vanished? Did he call the police? Did he believe he was hallucinating? Did he knock on neighbors' doors? Did he laugh? Did he think he was on the wrong street? Did he imagine it was a practical joke? Just what did he think when confronted by this sudden, sharp twist in his life's journey?

The photograph from the Pittsburgh Review-Review shows Mr. Hall standing on his land. "All that's left is this hay," he said.