All Blog Posts from Econwatch

After seizing control of more than 150 failed banks in the last two years, the U.S. government reluctantly finds itself in the real estate business.

According to a Wall Street Journal report Tuesday, the Federal Deposit Insurance Corp. now owns more than 5,000 foreclosed properties taken from small banks that collapsed as the housing market went into the tank.

The entire catalog of properties, ranging from an $18,700 home in Birmingham, Ala., to a $1.7 million lodge tucked in the mountains of Steamboat Springs, Colo., carries an appraised value of $1.8 billion.

As the Journal's Michael M. Phillips writes: "The financial crisis started with Americans buying homes they couldn't afford. It is ending with the government struggling to sell buildings it never wanted."

Phillips charts the FDIC's efforts to sell troubled Dresden Heights – an unfinished housing development in Atlanta that counts an interstate highway and a pest control company as neighbors.

Among the many challenges facing the FDIC – a decaying constructions site, looters and the fact that potential buyers would technically have to trespass to get to their homes (the original developer took out loans from two different banks to buy the land and then build on it).

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Over at the Wall Street Journal, Nick Timiraos asks: "Why Didn't the Housing Bubble Mess With Texas?"

One possibility, the Journal suggests, is Texas' ban on prepayment penalties. But then again, some bubblicious states had them too.

Another suggestion is that homes in Texas cost more every year: a $150,000 home in Texas would cost $5,300 in taxes and insurance, compared with $2,050 in California.

The problem is that you can't get $150,000 homes in most areas of California. A 3br/2ba home that could be purchased for $150,000 in the Lone Star State might cost a staggering $1.6 million in Burlingame, Calif., about 20 miles south of San Francisco. Taxes and insurance on that property would cost you over $20,000 a year -- and adding insult to injury, California has a steep income tax, while Texas has none.

In other words, we're back to the beginning. Why do S&P Case-Shiller data going back show no huge rise and fall in Dallas-area housing costs starting in 2000? House prices increased by about 25 percent, and then fell only slightly.

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The top subprime lenders largely blamed for triggering the economic meltdown were owned or financed by the banks now collecting billions in government bailout money, a report released Wednesday shows.

Coming on the same day the Democrat-controlled Senate shot down a bill that would have helped hundreds of thousands of homeowners escape foreclosure through bankruptcy, the report from the Center for Public Integrity also highlights the dramatic increase in political contributions from the financial services sector over the last three presidential cycles.

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A report today found the number of American households threatened with losing their homes grew 24 percent in the first three months of this year and is poised to rise further as major lenders restart foreclosures after a temporary break. Early Show financial contributor Vera Gibbons reported on whether the housing market has hit bottom. It depends on the local economy of the area, she found.


The foreclosure data out yesterday showed foreclosures threat up 24% in the first quarter. And there are more foreclosures in the pipelines -- 3 million potentially this year. That is going to continue to depress prices. Prices are already 30% after their peaks, which could drop another 10%.

But the good news that we're hearing is that there is a bit of a thawing going on in the housing industry. Some of these buyers are getting off the sidelines and the government programs working their way. The economists I talked to yesterday said that the bottom is, in fact, nearing. You could potentially hit bottom in late 2009.

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Caption: FDIC head Sheila Bair says no taxpayer dollars are at risk in bank failures

Bad loans are causing more and more serious problems for U.S. banks, according to a new analysis of Federal Deposit Insurance Corp. data that points to another wave of bank failures.

U.S. banks registered a 149 percent increase in troubled assets from December 2007 to December 2008, and 163 banks ended last year with more troubled loans than capital, according to an analysis by MSNBC.com and the Investigative Reporting Workshop at American University in Washington, D.C. That's up from only 13 banks that found themselves in such an upside-down position a year earlier.

Wendell Cochran, an associate professor at American University, set up a Web site with more details called banktracker.investigativereportingworkshop.org. Cochran wrote that although most banks remain reasonably strong, "it is clear that a year-long, and deepening, recession has taken its toll on many banks, especially those that are deeply involved in real estate lending."

The information is detailed enough to let customers look up the troubled asset ratio for their own bank and decide whether or not to shift their money elsewhere. The FDIC currently insures deposit accounts up to $250,000 -- but an individual or business holding more than that in a single account could lose money in a bank failure.

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While predicting recessions may be difficult, detecting when they've arrived is a bit easier.

The classic measuring stick is that a recession occurs when gross domestic product declines for two consecutive quarters. But a committee of the National Bureau of Economic Research has a broader definition -- saying a recession is a broad drop in economic activity that lasts more than a few months.

In December, the NBER's Business Cycle Dating Committee declared that the current economic decline began a year earlier.

But there's no simple, universally-agreed-upon formula to judge whether we're in a depression right now. That's mostly because nobody (except for some free-market economists) thought the Great Depression would ever repeat itself, with the conventional wisdom being that world government and central banks had learned their lessons from the 1930s.

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A bill that would allow struggling homeowners to get lower mortgage payments by filing for bankruptcy passed the House yesterday by a vote of 234-191. It is expected to face a rougher path towards approval in the Senate.

There was a mounting sense of urgency driving the legislation's passage. A survey by the Mortgage Bankers Association released Thursday reported that 12 percent of homeowners were in foreclosure or behind on payments. This number is likely to get worse as more Americans join the unemployment rolls. The government announced this morning that over 650,000 jobs were lost over the month of February .

The support of key Democrats was personally solicited by housing secretary Shaun Donovan, who assured wary house members that the bill was a critical component of the president's $75 billion housing initiative. A compromise was reached between moderate and liberal congressmen to prevent homeowners from seeking more favorable mortgage terms through bankruptcy unless they have first tried to reach a deal with their lenders, reports the Associated Press.

Many Republicans are opposed to the measure. They claim that it will encourage lenders to raise rates to offset losses they will suffer if more homeowners renegotiate their loan payments through the bankruptcy courts.

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Gary Varvel is the brilliant political cartoonist for the Indianapolis Star. His depiction of Treasury Secretary Timothy Geithner as an airline pilot trying to reassure terrified passengers about his improvisational flying skills is delicious. It gets to the point that there simply is no textbook response to the global financial crisis. This is especially true when it comes to disposing of those "toxic assets" President Obama, business leaders and reporters keep talking about.

"Toxic asset" has become economic shorthand for the bad loans at the center of this entire mess. The most damaging of the assets are mortgage-backed investments that have threatened the very survival of the world's biggest banks. Basically they are bundles of thousands of individual mortgages. At the height of the housing boom, selling these bundles of mortgages freed banks to loan even more money. Banks, Wall Street firms and hedge funds also bought these securities as investments. But the assets have lost their value as homeowners defaulted on the mortgages, foreclosures increased and home prices dropped.

The plummeting value of the mortgage-backed investments, and other securities built around loans, has forced banks to dramatically cut back on their lending to each other, businesses and consumers. The recession will only deepen unless the banks can eventually get rid of the "toxic assets" still on their books.

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President Obama's
mortgage bailout announcement on Wednesday directs $75 billion in government funds to bail out certain borrowers who are behind on mortgage payments or "at risk" of falling behind.

Although the president said that "it will not rescue the unscrupulous or irresponsible," there's no requirement that that U.S. Treasury deny bailouts to Americans who took outsize risks in hopes that their homes would continue to appreciate.

Which is why Obama's announcement has drawn a howl of protest from renters and those people -- yes, they exist -- who bought cheaper, modest homes they could comfortably afford.

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If you want to get a good sense of how bad the foreclosure crisis has become, take a drive down South 11th Street in Newark, N.J. That's where we caught up with Scott Pyper and his crew.

Pyper is co-owner of Empty Building Security. His business shutters foreclosed homes with 14-gauge steel barriers. He may have the only growth industry in housing these days.

"In the last year and a half that we've been in business we've been very busy," Pyper said.

The shutters are necessary because looters are breaking into foreclosed homes and ripping out copper pipes, kitchen cabinets, electrical wiring, insulation, wall studs - almost everything. The places are completely wrecked.

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