History Really Does Have Rhythm..D1 and D2 Dancing Together

It has often been remarked that events in history repeat themselves even across thousands of years.  Wars, famines, dictators, and economic cycles, especially economic cycles, all seem to have identical patterns in the manner they unfold.  It is certainly true when you compare D1 to our current depression D2.  I have written several articles concerning this and this is just one more in that series to journal the unfolding of events.  I have spoken often about my concern that the “second shoe” has not really dropped.  That “shoe” is the collapse of the commercial real estate market.  I worry because of a number of reasons.  First the size of the “nut” is much larger than home mortgages, but more importantly it is the downward spiral effect that occurs when the commercial real estate market deflates.

When someone loses their home because they lost their job, one family is impacted.  However, when a commercial site goes down, many families lose their income and homes, contractors and vendors suffer, and that affects the entire economy in a much more profound manner.  During D1, after the market crashed, many people lost their jobs and homes, and that’s when a mortgage was only $2,000.  Then the happy talk started, just like now that things were “showing signs of recovery”.  By 1933, everyone was talking that D1 was about over.  Then the commercial portfolios carried by the banks began to default in record numbers.  There really was no way that banks could cover those loses.  By that time people had little or no faith in the banking institutions of the time and they began to “run” the banks to get their money out.  President Roosevelt declared a “banking holiday” and well the rest is history.

The parallels to the events unfolding right before our eyes is very much in rhythm with those events.  When you read that foreclosure filings fell 10% in January from December, don’t get too excited. According to Realty Trac, foreclosures are 15% higher than they were a year ago and there’s likely to be an increase in foreclosure activity in the next few months, as the government’s crappy mortgage modification program continues to fail. So are things getting better?

Now look at the commercial portfolios. James J. Saccacio, CEO of RealtyTrac noted that “if history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works.” In other words, another storm is a-brewing in the market. The continued reluctance of banks to tackle the foreclosure problem is astounding. There’s near-universal agreement that principal reduction is the key, but we are left with lame programs, like this one announced yesterday by CitiMortgage. The so-called “strategic non-foreclosure” continues the “extend and pretend” policy that bank lenders have pursued over the past year. From the banks’ point of view, the longer they keep you on the hook, the better it is for them. Avoiding the mess of foreclosure allows them to keep the fictitious valuations on their books and in this new Citi program, ensures that some of the costs of carrying the dud loan get transferred to the borrower, who in all likelihood, will end up defaulting. Some experts believe that a new round of foreclosures could trigger a double-dip in housing prices.

A new report from the Congressional Oversight Panel (that’s Elizabeth Warren & Co, the TARP watchdogs) about the looming storm in the commercial real estate market. The report predicts a wave of losses, totaling $200-$300 billion, from commercial real estate loans could “trigger economic damage that could touch the lives of nearly every American.”

A snapshot of Dallas Fort Worth gives you an example how the commercial crash of D2 has started. Commercial property foreclosure filings in the Dallas-Fort Worth area top $1 billion (that’s one area for one month!) for the upcoming April sales. That’s much higher than commercial foreclosure posting totals in recent months. “It’s certainly the highest we’ve seen in this cycle,” George Roddy of Foreclosure Listing Service said Monday. The Addison-based foreclosure-tracking firm counts 333 D-FW commercial properties scheduled for auction by lenders next month.

During the last few months, the auction totals have averaged about 250. Among the properties set for sale next month are the Element Hotel in Irving, with $13.1 million in debt, and the Firewheel Distribution Center in Garland, with $13.1 million in debt, according to Foreclosure Listing Service. Part of Allen’s Star Creek development on State Highway 121, with about $15 million in debt, also made the April foreclosure list. The biggest current foreclosure posting is still the Four Seasons Resort and Club at Las Colinas, with $183 million.

Although the 400-acre resort has been facing auction for several months, owner BentleyForbes and its lenders have reached a “standstill agreement” while debt negotiations continue. BentleyForbes officials said earlier this month that they “expect that a resolution will be reached in the near future.” But it’s not unusual for a mortgage holder to continue posting a property for foreclosure while talks go on. Not all properties listed for foreclosure each month are actually sold by the lender. Many times, the borrower reaches a new mortgage agreement or delays the forced sale.

As I see it, the PTB cannot “prop” this up much longer.  They have been able to keep the stock market in a false positive because they own the central bank printing the money.  In fact, they privately hold 165 central banks globally.  However, at the rate things are still spiraling downward, they can’t print money fast enough.  They were trying to create hyperinflation, they have failed.  We are still very much in a deflationary curve and no one wins in that mode, not even the PTB.  They have been focusing on bringing sovereign economies down and they failed to factor what is really happening.  Are they really that stupid? No.  Simply, they didn’t do well in history class.

D2 and the Rythmns with D1 – Banks Stuck with Lots of Property

The universe operates in a rhythmic fashion.  You know the old saying “the more things change, the more they stay  the same”.  It is certainly the case with how D2 is unfolding in relationship to D1.  In previous articles we discussed how in D1, and after the stock market crash of 1929, that the real impacts, such as bank failures didn’t occur until 1932-33.  What really precipitated the bank failures and eventually even President Roosevelt declaring a bank holiday was the banks’ assets were crushed with a burden of foreclosed property.  At first it was homes and mortgages, but the final burden was commercial real estate assets reverting to the banks’ ownership.

We are now beginning to see the same exact thing happening now.  Already in 2010 there have been 857,600 foreclosures recorded.  The reality is weighed against nearly 5,000,000 foreclosures in 2009 and at least that same number awaiting in the wings for 2010.  The end result of this coupled with tightening credit markets, declining incomes, and reservations by potential buyers is a deflationary effect on the sale price of homes.  Already, even in the prime markets, housing values have dropped significantly, averaging 30-40% nation-wide. This is especially true on the higher end properties.

In such a market, people facing foreclosure have a potential to limit their liabilities by SHORT SELLING the property.  However, short selling requires the co-operation of the buyer, the seller, and the mortgage holder in order to be successful. This becomes really problematic however, when there is a second or even third mortgage involving the property.

The following article, “Short-Sale Program to Pay Homeowners to Sell at a Loss,” first appeared in The New York Times. To summarize some points of the article here is to provide homeowners with some knowledge of what may be available to them. In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave. This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions. More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done. For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around. Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

However, there is great concern because the proposed program is tailor-made for fraud.  If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it. The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?” Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said pre-foreclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales. Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan. “This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”

If you are a homeowner in distress, this may be an option for you, but be informed and be prepared to have to battle to get the best deal possible.  If you have second or third mortgages on your home, you may find even the newest assistance will not be available to you.  If you can, prior to looking at a short sale, consolidate second or third mortgages with some other debt instrument not tied to your property that may enhance your opportunities to take advantage of this new program without remaining “upside down” after the short sale is completed.  Learn as much as you can from your realtor or lender.

Only 60 Days Left Till the Banking Holidays! Caveat Emptor!

I have written on several occasions that we all should keep a couple of months of cash in our physical possession because of the possibility of a banking holiday (don’tcha just love the terminology of weasels) to prevent people from running the banks to get their money out.  I have also said many times that the second shoe on Depression2  has to drop early in 2010.  What we have seen so far is the markets being artificially manipulated and many main stream analysts are now speaking openly about these obvious manipulations.  In my last few articles I have laid out the fundamentals of why it continues to look very grim and is likely to worsen.  MSM is totally complicit in not informing you of the truth and so it falls to nutso guys like me to make a feeble attempt to warn you.  It is Monday morning 22 February and you probably aren’t even awake yet.  Sorry about that, but I am compelled to lay a few things out as it is now almost certain that we are only a few days from the start of Big Wave 2 down in the markets.  Today, I expect to see the markets move upwards 20-50 points and push the 10600 mark later this week, but this is the crest of the wave that crashes ashore.  There are a whole slew of technical market reasons for this prediction. With the sentiment reaching the ugly point, any major drop like to the 6500 level or below will create a mass panic.  But I believe we are going to do exactly that, PANIC.  There may be a number of events that converge to start it, but it is definitely in the cards within the next 30-60 days.

It seems the boys over at Citigroup know it is a fact because this is what they did late last week:

John Carney
Business Insider
Sunday, February 21, 2010

The image of banks locking their doors to keep customers from making withdrawals during a bank run is what immediately came to mind when we heard that Citigroup was telling customers it has the right to prevent any withdrawals from checking accounts for seven days.

“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change,” Citigroup said on statements received by customers all over the country.

Folks, How obvious must it become to you!  Notice the date of effectiveness, April Fool’s Day.  You see that is exactly what they think we are, fools.  These guys are telling you 30 days in advance that they have the right to deny you access to YOUR money!  Who the hell gave them that right.  Is it in any banking regulations?  OH, there are NO banking regulations!  I would suggest to the customers of Citigroup that they inform Citigroup by their actions, that they reserve the right to withdraw all of their money BEFORE April 1st.  I am really a very conservative moderate person, but I am beginning to boil over such audacity. I guess I am becoming a reluctant rebel in spite of my firm believe we should have governmental systems in place to  prevent such bold acts by criminals and we should trust those we have elected and those who were hired into federal agencies to prevent acts such as these. But alas, silence and no actions or presence in MSM is seen.

In this case, however, I hope the few readers I have help make this article go viral on the internet!  It appears we have 30 days or so to make it happen.  If nothing else, it would send a message loud and clear to these arrogant knuckleheads that even though they own Congress and the Regulators, they do not own us!  Let’s see if we can get 30-40% of all Citigroup customers to withdraw their monies and open accounts with small local banks and credit unions.  That percentage alone would really send a strong message.  We are not helpless.  We are not without power in numbers.  What do you say, let’s give it a shot.  Just send this article to everyone you know and ask them to do the same.  Let’s see how far we can spread this thing in 30  days.  I would appreciate any comments or suggestions you may have to make this happen.

More Green Shoots? Only 180 Days Left Before The Banking Holidays!

The FDIC announced the closure of another 5 banks this week, bringing the total to 69 this year so far.  See the chart below to put this in perspective.  Given that the FDIC said there are still another 305 banks in “troubled waters”, we can kind of present a scenario and a theory of things to come.  Being insane as I am, I can then estimate when the banking holiday begins!!  Looks right now like late January 2010.  Well you judge my logic.

bank failures

The chart above represents 3 failures in 2007, 25 in 2008, 69 so far in 2009, 120 projected total for 2009, and finally 215 failures are projected for 2010. So in this period, 358 banks will fail.  When comparing to 1929-1933, 4,000 banks had failed.  But unlike today, banks then didn’t have branches.  So when you look at this in today’s number and you use an average of 10 branches per bank of today, we can expect 3580 1929 adjusted numbers. We assume that of the existing FDIC indentified 305 troubled banks, 70% will fail, if consistent with current trends.

OK, now let’s again look at historical facts and compare them with the facts of today. On March 3, 1933, FDR declared a banking holiday.  You gotta love those holidays where everybody gets screwed.  The reason he closed the banks were that the existing banks (-4000) were getting clogged with commercial real estate foreclosures creating unsalable assets.  Ok let’s fast forward. MSM is leading stories that warn of the new crisis is what??? Commercial and Construction loans.  De J’Vue?

Today the FDIC announced it only has $13 Billion left in the FDIC Insurance Account.  Given the rate of bank failures and that the average bank closure is costing the FDIC about $250 Million that gives us a cross over the line date of the last week in January 2010.  Secondly, in the same release, the FDIC says it expects about $10 Billion in future costs.  However, when I do the calculations, the number is more like $89.5 Billion.  So the FDIC is not only light by January 2010, it is missing the correct planning number by at least 8 times!

So given all these FACTS, and being insane as I am, I will now say look for the banking holidays from January 15th to February 15th 2010.  Gee, I wonder if Hallmark will come up with a card?