Last Updated Apr 23, 2010 4:29 PM EDT "I spoke to Osmin earlier and confinned (sic) that Jason is looking into some adjustments to his methodology that should be a benefit to you folks [Chase]." "Heard you guys are revising your residential mbs rating methodology - getting very punitive... heard your ratings could be 5 notches back of mo[o]dys equivalent. gonoa (sic) kill your resi biz. may force us to do moodyfitch only cdos!" The first statement is from a February 2007 email from an employee of Moody's (MCO), one of the three major credit ratings agencies, to a banker at JPMorgan Chase (JPM). The "methodology" in question refers to the way Moody's rated mortgage-backed securities deals the banking giant was involved in. The second statement is from a May 2006 message from a UBS (UBS) banker to someone at McGraw-Hill (MHP) unit Standard & Poor's, another major ratings agency. Together, they're evidence of a con David Mamet would admire (there are hundreds more such exchanges for … [Read more...] about Bad Credit: How S&P, Moody’s and Fitch Helped Cause the Housing Bubble
The housing bubble
The Stimulus Package: Like the Housing Bubble, Only Better
Last Updated Apr 10, 2009 4:17 PM EDT Back at the start of 1996, the U.S. unemployment rate was 5.6 percent. Then the assembled investors and businesses of the United States discovered the Internet. Over the next four years spending on information technology equipment and software in the United States roared upwards from a pace of $281billion to a pace of $446 billion a year -- and the U.S. unemployment rate dropped to 4.0 percent. The economy grew at a 4.3 percent real annual rate as the spending of the high-tech boom pulled extra workers out of unemployment and into jobs. Back at the start of 2004, America's banks discovered that they could borrow money cheaply from Asia and lend it out in higher-yielding domestic mortgages while using sophisticated financial engineering to -- they thought, or was it that they claimed? -- control their risks. Over the next two years, spending on housing roared upward from a pace of $624 billion to a pace of $798 billion a year -- and the U.S. … [Read more...] about The Stimulus Package: Like the Housing Bubble, Only Better
How Banks Inflated the Housing Bubble, and Why Some Cities Were Spared
Last Updated Mar 31, 2010 4:21 PM EDT Why have some U.S. housing markets gotten creamed during the financial crisis while others were spared? OK, that's a complicated question. But lending patterns -- specifically, the degree to which banks pushed subprime or nonprime loans in particular communities -- turn out to be a surprisingly important factor. The hardest-hit U.S. housing markets tend to draw the most attention. (If it bleeds, it leads.) But it can be even more instructive to zero in on what have emerged as the most resilient markets. Take, say, Ithaca, New York, and Honolulu. Although these are very different communities, they have a common ingredient when it comes to housing -- relatively low levels of nonprime lending. As in much of the U.S., home prices in both cities rose in the six years preceding the housing crash. Notably, however, Ithaca and Honolulu home values continued to climb even after housing cratered in 2007. That makes the two metropolitan areas among the lucky … [Read more...] about How Banks Inflated the Housing Bubble, and Why Some Cities Were Spared
Three’s Company: How Fannie, Freddie and the Feds Stoked the Housing Bubble
Last Updated Apr 9, 2010 5:46 PM EDT Waterboarding might've been more fun. Members of the Financial Crisis Inquiry Commission on Friday tormented former Fannie Mae CEO Daniel Mudd over why the "government-sponsored enterprise" in 2007 burrowed deeper into subprime lending even as such mortgages were falling apart. Fannie and its sister GSE, Freddie Mac, got torched when home prices plummeted. The firms may ultimately require more than $160 billion in taxpayer funds to stay alive. Even if they survive, a broader question looms: Can these for-profit entities simultaneously make money, satisfy their government mandate to promote homeownership and manage the risks inherent in the housing business? That's unclear. Especially given the companies' habit of flexing their muscles to evade regulation. Panelists Brooksley Born, Byron Georgeiou and Bill Thomas intimated that Fannie's failure owed partly to its extensive lobbying over the years to weaken federal oversight of the companies. But … [Read more...] about Three’s Company: How Fannie, Freddie and the Feds Stoked the Housing Bubble
Who the housing recovery is leaving behind
The economic recovery since the Great Recession has been hailed as unusually long, with over eight years of sustained job growth and GDP increases, and -- for the last few of those years -- income increases. But when it comes to housing, the recovery has created a stark divide. New data released by Zillow, the real estate listings company, shows that lower-priced homes are recovering value more slowly than those with higher prices. Even while many coastal cities are making headlines for increasingly unaffordable housing, more than half of the homes in the country -- 53 percent -- haven't regained what they were worth at the peak of the housing bubble in 2007. Across the nation, 1 in 20 mortgaged homes is still worth less than the mortgage owed on it, according to CoreLogic. This is evident in California, the poster child for the current housing affordability crisis. In the Bay Area, even the cheapest 30 percent of homes are up by as much as 20 percent over their 2007 value. But … [Read more...] about Who the housing recovery is leaving behind