I hope you don’t see an ad more offensive than this today

The always-brilliant website Sociological Images found this appalling ad for an Australian “luxury” real estate development. My first response after “This has got to be a hoax,” was how unsafe these places are when you have a resident scared out of her wits tied to a chair and calling the cops. This doesn’t make me want to live there, it makes me want to live anywhere BUT there.

Nothing says great living quite like the threat of rape.

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New reg lets banks ignore actual value of “underperforming” loans

It is only fitting that on Halloween the Federal government is increasing the number of zombies among us.

Federal bank regulators issued guidelines allowing banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount.

The rationale?

While CRE (commercial real estate) borrowers may experience deterioration in their financial condition, many continue to be creditworthy customers who have the willingness and capacity to repay their debts. In such cases, financial institutions and borrowers may find it mutually beneficial to work constructively together.

Nothing inspires confience in me like the phrase “financial institutions and borrowers may find it mutually beneficial.” Especially since banks are not required to only apply this rule to “creditworthy customers who have the willingness and capacity to repay their debts.”

I really can’t top what Doug McIntyre wrote at DailyFinance.com:

The FDIC appears simply to be taking losses that would be incurred in the normal course of business and pushing the true accounting for them into the future. It is to the political benefit of Washington to make it appear that the banking sector is getting better. It also probably helps the FDIC, which is essentially insolvent, from having to come up with billions of dollars to insure deposits at failing banks.

Some can argue that this regulation just does for commercial real estate what had already been done for home mortgages. In April, the Financial Accounting Standards Board approved a new set of rules allowing financial firms to fiddle with how big their real-estate losses are. (New accounting rules let bankers set the value of their own toxic assets)

When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean – neither more nor less.”

Why I don’t believe in this recovery

What’s the opposite of cherry picking? Prune picking? This may be an exercise in that but this “recovery” looks like smoke without mirrors. Here’s a reader of items that explain my thinking.

First, the decrease in the rate of unemployment as positive sign is pure spin and doesn’t reflect the actual situation at all.

The Spin: Sept. 17 (Bloomberg) — The number of Americans filing first-time claims for jobless benefits fell unexpectedly last week, a sign the labor market is deteriorating at a slower pace as the economy pulls out of the recession.

A: NEW YORK (CNNMoney.com) — Five states posted jobless rates above 12% in August, according to federal data released Friday. California, Nevada and Rhode Island each hit record-high rates, the Labor Department said. Michigan led the nation in unemployment, with a rate of 15.2%, while Nevada was next at 13.2% and Rhode Island was third at 12.8%. California and Oregon were tied for the fourth spot, each with unemployment at 12.2%.

B: After reviewing the various unemployment calculations maintained by the Bureau of Labor Statistics, I have come to the conclusion that the U6 calculation (Unemployed, discouraged and underemployed workers) is the most relevant, which increased 0.5 percentage points in August to a whopping 16.8 percent, representing a total of roughly 20 million people in the U.S. And remember, this is “less bad”.  I like that the U6 number includes underemployed workers, because these are people that have jobs but aren’t making as much money as they are accustomed; they have been forced into part time work. This can impact payments to ARM companies.

Second, housing starts are at a nine month high! Great, just when a huge amount of housing stock is about to be dumped on the market, aka, more foreclosures.

The Spin: Sept. 17 (Bloomberg) — Housing starts in the U.S. rose to the highest level in nine months … adding to evidence an economic recovery is taking hold.

A: WASHINGTON (Reuters) – The federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset. "Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams.

B: While this index (and single family starts) are well above the massively depressed levels recorded late last year and early this year, this has in all likelihood been a rebound from unsustainably weak results that was reinforced by a temporary boost to demand from the $8000 first time homebuyer tax incentive that applies to purchases that close before December 1. Gains from here on will probably be much more difficult to achieve, as poor labor market conditions, tight credit, overly leveraged household balance sheets, and still considerable inventory of new and existing homes all exert downside pressures. –Joshua Shapiro, MFR Inc.

And who is relying on all those mortgages to keep it out of bankruptcy? No, not the banks but the US government.

 The Fed’s balance sheet expanded again in the latest week, rising to $2.125 trillion from $2.072 trillion, but the increase came primarily from purchases of mortgage-backed securities, Treasurys and agency debt. Holdings of mortgage-backed securities alone jumped by nearly $60 billion, and now make up nearly a third of the overall balance sheet. The Fed started a program in March to ramp up such acquisitions in order to keep long-term interest rates low. Nearly all of the programs set up as emergency facilities to prop up the financial system posted declines. Direct-bank lending remains at its the lowest level since the collapse of Lehman Brothers, and central-bank liquidity fell again. The commercial paper and money market facilities also dropped and are at their lowest levels since inception. Companies lately have decided to take their funds out and tap investors directly as sentiment in the market improves. The only emergency facility posting gains was the TALF program aimed at spurring consumer lending.

Take note of which parts of the government are being particularly hurt:

WASHINGTON – The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue. The agency, a growing source of funds for first-time homebuyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association.

WASHINGTON (Reuters) – U.S. bank regulators will meet at the end of the month to explore options, possibly including some that are not well-known, to replenish the dwindling fund that safeguards bank deposits, the chairman of the Federal Deposit Insurance Corp said on Friday.

By December 2010 the state expects its unemployment trust fund, which is being tapped $31.7 million per month, will run out. The fund, which contained $430 million at the end of 2008, could dip to $118.5 million by year’s end. … Hawaii is not alone; at least 14 other states are insolvent, and four more are on their way. (Emphasis added)

But the stock market broke 9800 yesterday, so happy days are here again.

Welcome to the boomtown
Pick a habit
We got plenty to go around
Welcome, welcome to the boomtown
All that money makes such a succulent sound
Welcome to the boomtown

— David & David, Welcome to the Boomtown

Weird sales incentives: Buy a house, get a gun

A Texas real estate agent looking to add more bang to her business is offering clients in law enforcement a free Glock pistol if they buy a home from her.

Shoot, I really liked that house.

Did he swindle them or did they fail the class?

Barry Landreth, a business professor who taught real estate finance and
development at the University of Southern California was arrested Friday on charges of swindling students and others in a real estate fraud. An FBI affidavit said Landreth stole at least $1.5 million in the first 10 months of 2005, telling students and other investors he would buy land in Chicago and Las Vegas and then
sell it for large profits. Instead, he transferred all the money into his personal account without buying the land.

Will this be on the final?

If found guilty he will be sentenced to six years of having to sit through presentations for time-share deals in Florida.