Like An Anchor

....in a bottomless pit:

If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.

Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.

Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.

In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope.

Mark Zandi, chief economist with Moody’s Economy.com, agreed with Fiserv’s current assessments. “I think more price declines are coming because the foreclosure crisis is not over,” he said.

An interesting companion to skyrocketing unemployment and exploding debt, no?  As Ed observes, for most of us our homes are our biggest investments, and I'm not referring to flipping fixer-uppers.  The typical home-ownership bell curve follows a person's earning potential upward from young adulthood (the "starter" house) to the peak years of middle-age ("dream house") to the "golden years" ("downsized" house).  Getting married and having kids also figures into the dynamic, as that boosts your living space needs, which then diminish once the nest is empty.  For anybody who purchased their current home in the during the height of the Democrat Financial Logic Bomb-inflated housing bubble, they're pretty much up that famous creek without a paddle.

Not all of us, of course.  My in-laws' "starter" house was the house they died in nearly half a century later.  My parents have been living in their first house since 1965.  Proving that the fruit don't fall far from the tree, my wife and I have contendedly occupied our modest domecile for almost sixteen years, and have no intention of "upgrading".  Even if we did, it would be pointless in this moribund real estate market, and in any case, the emptying of our own nest is just over the time horizon.  Why not just skip the "dream house" phase and stand pat?

I guess as conspicuous consumers, we pretty much suck.  Which means at least some of my mother's economic counsel, borne of her experience growing up during the (first) Great Depression, managed to stick on my cranial velcro.

Thank God for that, because It does put us in a much more tenable position than most of our fellow countrymen, however - MUCH more:

Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday… “They were the worst three months of all time,” said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

What are banks doing with all these repossessed homes?  Well, consider that the collateral for a home mortgage is - you guessed it - the house itself.  If the mortgagee can no longer make the payments, and can't sell the place because its fair market value is less than the balance they owe on the loan, they default.  The bank then retakes possession of the house, the homeowners are tossed out on their fannies, and they sell the house to another buyer, usually at some discount to get it off their books.

However, in this case, the bank would have the same problem the borrower does - they can't unload the home without incurring a huge loss.  Figure in that they'd be repossessing an enormous number of residences, each with a big-time hit, and the end result would be to exacerbate another trend of Obamanomics: runaway bank failures.  So what do they do?  Simple:

…in some low-price markets, lenders simply aren’t following through on foreclosures, according to Jim Rokakis, treasurer for Cuyahoga County, Ohio, which includes Cleveland.

“They’ll even set the date for the sheriff’s sale, but they don’t file the final papers,” he said. “They hold it in abeyance and let the residents stay in the house.”

Realize that for the bank - or mortgagor - a mortgage is an asset - in this case, a receivable - on their balance sheet.  When a creditor can no longer collect on a receivable, the standard accounting procedure is to write it off - or take the loss.  If a bank is holding a ton of defaulted mortgages on their books but showing them as viable receivables - and at their original book value, rather than the much lower fair market value - this does not reflect their true financial position.  In effect, they are holding losses off their income statements and burying them on their balance sheets in order to pretent they don't exist.

There's a less delicate way of describing this situation:

Bluntly, we have institutionalized accounting fraud and the so-called “regulators” that are supposed to put a stop to and even prosecute these acts are willfully and intentionally ignoring them. The cities and towns across America are the big losers where these practices cause blight through intentional neglect while these “banks” claim to be in far better financial condition than is in fact the case…

Virtually everyone, including our regulators, has recognized the infirmity of these practices and written about it – newspapers, bloggers like myself, and even the OTS… Yet nothing has been done – not by The Fed, not by Congress, not by OTS and not by the FBI, even though accounting fraud is in fact a felony.

Now that's a fascinating conundrum, isn't it?  Remember how Democrats went apeshit over Enron?  That was all about accounting fraud.  They swindled their way to unchecked power on the backs of the Wall Street collapse they caused a year ago.  Just today the House Financial Services Committee is voting on legislation to create another layer of smothering, redunant, poverty-creating financial regulation bureaucracy whose mandate will be to "protect American consumers from predatory lenders" or some such rotgut.  This would be Enron and "Wall Street-gate" all rolled into one "populist" daisy-cutter.  So why aren't they all over it?

Because the resulting financial apocalypse would happen on their (and their god's) watch, that's why.  And they'll do ANYTHING to hide it, mask it, conceal it, camouflage it, kick it down the road as far as they possibly can, to prop up the illusion of "green shoots" for as long as they possibly can.  Or until Democrat Financial Logic Bomb II blows up, whichever comes first, in which case Barack Obama will get another nice, shiny, new crisis to exploit.  Are you beginning to notice the ultimate pattern at work here?

Doug Ross is:

And what entity was responsible for a whopping two-thirds of all bad mortgages? The federal government.

Yesterday, The Wall Street Journal’s Peter J. Wallison offered a flabbergasting statistic: Almost two-thirds of all bad mortgages in our financial system were bought by government agencies or required by government regulations.

Who wanted these dicey loans? The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA—all government agencies or private companies forced to comply with government mandates about mortgage lending. When Fannie and Freddie were finally taken over by the government in 2008, more than ten million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed. An additional 4.5 million were guaranteed by the FHA and sold through Ginnie Mae before 2008, and a further 2.5 million loans were made under the rubric of the Community Reinvestment Act (CRA), which required insured banks to provide mortgage credit to home buyers who were at or below 80% of median income…

Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations.

…[Why?] The answer, of course, is that it was government policy for these poor quality loans to be made. Since the early 1990s, the government has been attempting to expand home ownership in full disregard of the prudent lending principles that had previously governed the U.S. mortgage market. Now the motives of the GSEs fall into place. Fannie and Freddie were subject to “affordable housing” regulations, issued by the Department of Housing and Urban Development (HUD), which required them to buy mortgages made to home buyers who were at or below the median income. This quota began at 30% of all purchases in the early 1990s, and was gradually ratcheted up until it called for 55% of all mortgage purchases to be “affordable” in 2007, including 25% that had to be made to low-income home buyers…

The Democrat Financial Logic Bomb, ladies and gentlemen.  Dreamed up by Democrats, imposed by Democrats, spread by Democrats, protected by Democrats, and then, when the sabotage reached critical mass, blamed on the Republicans BY those same Democrats, who then reaped the most ill-gotten electoral bonanza in American history.

Contemplate that as you sit in your two-bedroom flat or no-parking zone or homeless shelter or relatives' basement, your "dream house" a fading memory - or as you squat in the home your bank dares not repossess.  If that doesn't insanely and seismically piss you off, you're probably already a Kool-Aid addict.