Share the Worst Year Ever With Warren Buffett

Should it make me feel better about lost investments if even Warren Buffett wasn't able to make anything of 2008? In some demented way, it does. He is touted as the head guru of successful investing, a veritable genius with the dollar. But even he was baffled by negotiations through the market machinations of 2008. It was his worst year ever in a stellar 40-year career.

His well published annual letter to shareholders shows a man of letters as well as a man with a way with money. He asks his shareholders to place all blame for any losses firmly on his shoulders. His views, as always, are interesting and often iconoclastic, like the often quoted “only when the tide goes out do you find out who was swimming naked." He doesn’t disappoint this year with other pearls of wisdom and interesting viewpoints, no matter what your investment philosophy.

The point here is not to dissect the financials for Berkshire Hathaway (I’ll leave that to you or analysts of a higher pay grade), but what I’m about is sharing some meaningful thoughts, insights and predictions from a pretty smart guy. With an eye to the future, I find Buffett's words, in the midst of a record setting horrible year, quite comforting.

I’ve included below some favorite excerpts carved out of a 100 pages of his company's year in review.

A few words in retrospect and eventual optimism:

By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game. As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.

Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.

Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 211⁄2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.

Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.


Buffett's Eye on Housing:

Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay. Homeowners who have made a meaningful down-payment – derived from savings and not from other borrowing – seldom walk away from a primary residence simply because its value today is less than the mortgage. Instead, they walk when they can’t make the monthly payments.

Home ownership is a wonderful thing. My family and I have enjoyed my present home for 50 years, with more to come. But enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities. And the home purchased ought to fit the income of the purchaser.

The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.

Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.



Derivatives ... the root of so many ills:

Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks. They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of earnings for years. So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the books.

Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get our minds around its book of 23,218 derivatives contracts, made with 884 counter parties (many of which we had never heard of). So we decided to close up shop. Though we were under no pressure and were operating in benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.”

Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives.

Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).

For a case study on regulatory effectiveness, let’s look harder at the Freddie and Fannie example. These giant institutions were created by Congress, which retained control over them, dictating what they could and could not do. To aid its oversight, Congress created OFHEO in 1992, admonishing it to make sure the two behemoths were behaving themselves. With that move, Fannie and Freddie became the most intensely-regulated companies of which I am aware, as measured by manpower assigned to the task.

On June 15, 2003, OFHEO (whose annual reports are available on the Internet) sent its 2002 report to Congress – specifically to its four bosses in the Senate and House, among them none other than Messrs. Sarbanes and Oxley. The report’s 127 pages included a self-congratulatory cover-line: “Celebrating 10 Years of Excellence.” The transmittal letter and report were delivered nine days after the CEO and CFO of Freddie had resigned in disgrace and the COO had been fired. No mention of their departures was made in the letter, even while the report concluded, as it always did, that “Both Enterprises were financially sound and well managed.”

In truth, both enterprises had engaged in massive accounting shenanigans for some time. Finally, in 2006, OFHEO issued a 340-page scathing chronicle of the sins of Fannie that, more or less, blamed the fiasco on every party but – you guessed it – Congress and OFHEO.

The Bear Stearns collapse highlights the counter party problem embedded in derivatives transactions, a time bomb I first discussed in Berkshire’s 2002 report. On April 3, 2008, Tim Geithner, then the able president of the New York Fed, explained the need for a rescue: “The sudden discovery by Bear’s derivative counter parties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counter parties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets.” This is Fedspeak for “We stepped in to avoid a financial chain reaction of unpredictable magnitude.” In my opinion, the Fed was right to do so.

A normal stock or bond trade is completed in a few days with one party getting its cash, the other its securities. Counter party risk therefore quickly disappears, which means credit problems can’t accumulate. This rapid settlement process is key to maintaining the integrity of markets. That, in fact, is a reason for NYSE and NASDAQ shortening the settlement period from five days to three days in 1995.

Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counter parties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.

Sleeping around, to continue our metaphor, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits. In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mind boggling screw-ups that are required.

Click here to read the Letter to Shareholders in its entirety.

New Home Sales in January Down 48% Over 2008; Prices Down 13%

New home sales declined to a new record low for January. The headlines reveal some shock at the news, but what will be truly shocking is reaching a bottom.

Sales of new homes fell 10.2 percent in January, the worst showing on record since 1963 according to the Commerce Department’s report this week. Last month's sales rate was 48.2 percent below the January 2008 estimate of 597,000. I doubt that anyone in the building business is surprised at these numbers as their sales centers remain empty of buyers.

Economists expected a sales pace of 330,000 but actual sales fell to 309,000 shattering a new monthly low set in September 1981 (interest rates were about 16-18% then). The fact that fewer new homes sold at 5 percent interest rates than were sold in one month when interest rates were over three times higher, shows the very serious and worsening state of the market.

At the current slower sales pace, the inventory level of new homes will take 13.3 months to sell off.

The Associated Press reported the median sales price fell to $201,100 in January, a record 9.9 percent drop from the previous month and a decrease of 13.4 percent from a year ago. “The median price is the midpoint, where half sell for more and half for less. The average home price also dropped to $234,600 last month, a 9.8 percent decline from December.”

January new home sales fell 5.6 percent in the Midwest and dropped 6.5 percent in the South. In the Western states builders and new home sales were clobbered in January with a 28 percent plunge in sold units. Competing against the foreclosures flooding the market, Western homebuilders are looking at up to 60 percent of regional sales being gobbled up by foreclosures. (California Association of Realtors reported that the rate of sales for resale single-family homes, including foreclosures, soared 100.8 percent while the median price sank 40.5 percent compared to the same month last year.) Only the Northeast showed some resilence where sales rose 12.5 percent.

The disappointing new home sales figures for January come on the heels of the National Association of Realtors report that the sale of existing homes fell 5.3 percent from December, the weakest showing since July 1997.

Housing starts (including multi-family) in January were 16.8 percent below the December estimate of 560,000 and is 56.2 percent below the January 2008 rate of 1,064,000. December marked the lowest level of starts since the Census Bureau began tracing housing starts in 1959. Obviously January’s numbers left December lows in the dust.

Home sales and housing starts continue to constrict at an alarming rate. Inventory reduction by eventual absorption and continued declines in starts will slowly diminish excess inventory.

The bad news is that the economy also constricts in the absence of a thriving housing market, negatively effecting tax revenues, manufacturing and employment.

Fed Priorities - Housing Takes a Back Seat to Banks

Bernanke testifies before the Senate
(Landov) WSJ

Federal Reserve Chairman, Ben Bernanke, was once again subject to cross examination this week when he testified before the Senate Committee on Banking, Housing and Urban Affairs. The raison d'etre was, of course, the economy and more specifically, how to stabilize the banks.

Committee Chair, Barney Frank, presided as sheriff and his posse surrounded Bernanke to debate which fix should come first the chicken or the egg - housing or the banks. Bernanke was clear and concise that the financial fix had to come first.

The Fed Chairman was amazingly patient in answering the committee member's questions, hour after hour. If these Congressional hearings are going to be televised to the entire world, the senators' questions should be juried for common sense in advance. The hearings would have been comic at times but for the serious nature of the issues. I'm thinking of a Congressional reality show, “Who Wants to Be an Idiot?”

Here's more patience: Barney Frank calls for resumption of hearings after lunch at 1:00. Bernanke is promptly in his seat prepared to share his brilliance and good nature in suffering more uninformed and repetitive questions. But 1:00 doesn’t mean much to anyone else. The rest of the committee members are mulling around chatting or still in their respective restaurants paying their bill.

Bernanke, arguably the most powerful and important man on the planet, at least for today, is being subjected to absolutely no respect for his time. Barney will get to him when he’s ready. This is the same lackadaisical group that can’t understand that a CEO’s time may be important enough as to render time-consuming activities such as flying commercial, or egads - driving, is a gross waste of time and not in the interests of shareholders.

Enough about our civil servants. Let’s get to the real issue.

Bernanke accomplished this week what Obama and the invisible Treasury Secretary Timothy Geithner have failed to do - leave some hope in his wake. Some glimmer of hope that there is a way out of this mess.

When the first TARP program was formulated by former Treasury Secretary Hank Paulson along with Ben Bernanke, the vision focused on fixing the housing market by buying the toxic assets from the banks (which were mostly home mortgages) freeing the frozen credit markets, allowing banks to once again operate and issue credit under more “normal” conditions. At that time Paulson was clear that housing was the ground zero for a economic recovery. But that was yesterday which, in this rapidly changing recession, might as well be ancient history.

The toxic asset quetion is too complicated to contemplate by most, a real mind twister once you enter the maze (I remain lost within). Toxic assets raise the chicken and egg question. What needs to be stabilized first, the financial sector or the housing market? One of the key sticking points keeping banks under pressure has been the toxic assets weighing on balance sheets. The government has been trying for months to stabilize these assets, but action has been largely stymied by difficulties in pricing the instruments as home prices continue to decline.

The latest Treasury plan calls for a private-public partnership to remove the assets from banks’ balance sheets. But the same old problem that led Paulson to abandon the original TARP toxic asset plan - pricing the troubled assets - has returned with few answers but lots of discussion. Some say the troubled assets, mainly mortgages, can't be valued until the housing market stabilizes.

Ergo, which comes first, the chicken or the egg?

In the Fed Secretary's vantage point, the depth of the economic distress has moved right past the isolation of a housing fix. It's a larger and far reaching matter with problems in just about every corner of our economy. The epicenter of the storm has turned into a tornado and Bernanke believes that the stabilization of the financial system has to happen before there can be a fix for housing, or any other sector.

Bernanke sums up his position with a powerful statement of purpose:

“If there’s one message I’d like to leave you, it’s that if we’re going to have a strong recovery, it’s got to be on the back of a stabilization of financial system. And it’s basically black and white. If we stabilize the financial system adequately, we’ll get a reasonable recovery. It might take some time. If we don’t stabilize the financial system, we’re going to founder for some time.”

Let me paraphrase: America, if you don’t want to go cliff diving, this is what we have to do – stabilize the banks. I get it. Fix this then we can survive to fix the housing. Bernanke insisted that the focus must be on the wider economy first. “Restoring confidence will be the best thing to get the housing market going again,” he said.

The chairman sides with the financial sector in the chicken and egg argument, and said that he thinks the Obama administration’s plan is the “best hope” for reviving the economy. If it is successful, the Fed forecasts that the recession will end this year.

On the other side of the coin Bernanke covered his bets and admitted that most economists' forecasts of this recession have been too optimistic so far. “Nobody’s record of forecasting this thing has been really good,” he said.

We're into uncharted territory with no road map.

Source: Wall Street Journal

Old Archives Show the Road to Financial Perdition

Throwing Clinton, that's Bill, under the bus is no longer the national past time, but that could be resurrected if we dwell too long on the history of our financial and housing crisis.

The original smoking gun for easy credit can be found in a document entitled "The National Homeownership Strategy: Partners in the American Dream" which was posted on the HUD website until 2007 when it was removed, ("probably because the housing bust made it seem embarrassing to the department.") Sorry, I had a valid link last year but it is now defunct. This is an excerpt from the document:

"For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership."

While we're walking back in time, take a look at this eye opening warning of the dangers of easy credit. This worthwhile abstract is entitled Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt by the American Real Estate and Urban Economics Association presented on June 29, 2001. Here is one statement: "If there is an economic disruption that causes a marked rise in unemployment, the negative impact on the housing market could be quite large. These impacts come in several forms. They include a reduction in the demand for homeownership, a decline in real estate prices and increased foreclosure expenses."

Nobody wanted to hear it. Below is an article that appeared in the New York Times in 1999 ....

Fannie Mae Eases Credit To Aid Mortgage Lending

September 30, 1999


In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

So many breadcrumbs along the way to riches ...

Existing Home Sales - Another Thumbs Down

Sorry guys but it’s another thumbs down for the National Association of Realtors' Existing Home Sales Report for January, which showed a decline of 5.3 percent from December. The only good news from the report is that the inventory dropped from 4.74 million units in December to 4.49 million units in January, which marks the lowest inventory level in two years. Take the bright spot wherever you can get it.

Lawrence Yun, NAR chief economist, believes that many buyers are sitting on the side lines waiting to see what the stimulus package does for the economy and improved affordability (prices still falling). The higher conforming loan limits for some areas will also increase the potential buyer pool.

NAR is predicting a bottom by the end of the year, but we have learned not to put much stock into their oracle, which has proved to be overly optimistic time and time again.. Their estimation is that 2009 will end with about 900,000 additional home sales compared to conditions before the stimulus package. Oh, I wish it were so …

The inventory supply fell to a 9.4-month supply based on the current sales pace. But don’t forget to factor in the multitude of homes that are suspended in foreclosure moratoriums and the shadow inventory, which is the foreclosure inventory in the banks’ possession but not currently on the market. The Obama foreclosure relief plan will not save all the houses in moratoriums.

The national median existing-home price for all housing types was $170,300 in January, down 14.8 percent from a year earlier when the median was $199,800, attributed partly to the large number of distressed sales. Overall about 50 percent of sales were distressed transactions.

“Distressed sales activity appears to be leveling off, although there are wide differences locally. For example, close to 80 percent of all sales are either foreclosed properties or short sales in Santa Ana, Calif., but less than 20 percent in the Chicago region,” Yun said. About a quarter of all inventory is listed as being distressed, but NAR estimates that distressed sales – foreclosed or those requiring a lender-mediated short sale – comprised about 45 percent of all sales in January. “Home buyers are evidently competing for homes with deep discounts,” he said.

Yun said it will take a while for the stimulus to show in housing data. From the time a buyer starts looking for a home until it is reported as a closed sale can take as long as five months: a median of 10 weeks to search and make an offer, about 6 weeks to close the transaction and up to 4 weeks to collect and report the data. “This means improvement from the economic stimulus isn’t likely to show as closed home sales before summer, although we may see an earlier lift from lower mortgage interest rates,” he said.

Single-family home sales fell 4.7 percent to a seasonally adjusted annual rate of 4.05 million in January from a pace of 4.25 million in December, and are 7.1 percent less than a 4.36 million-unit level in January 2008. The median existing single-family home price was $169,900 in January, which is 13.8 percent below a year ago.

Existing condominium and co-op sales dropped 10.2 percent to a seasonally adjusted annual rate of 440,000 units in January from 490,000 units in December, and are 20.3 percent lower than the 552,000-unit level a year ago. The median existing condo price⁴ was $174,400 in January, down 20.6 percent from January 2008.

Regionally, existing-home sales in the Northeast dropped 14.7 percent to an annual pace of 640,000 in January, and are 23.8 percent lower than January 2008. The median price in the Northeast was $228,200, down 14.7 percent from a year ago.

Existing-home sales in the Midwest fell 5.7 percent in January to a level of 1.00 million and are 16.7 percent below a year ago. The median price in the Midwest was $138,100, which is 6.8 percent lower than January 2008.

In the South, existing-home sales declined 5.7 percent to an annual pace of 1.64 million in January, and are 15.9 percent below January 2008. The median price in the South was $152,100, down 7.4 percent from a year earlier.

Existing-home sales in the West were unchanged at an annual rate of 1.20 million in January and are 29.0 percent stronger than a year ago. The median price in the West was $220,000, which is 25.5 percent below January 2008.

More Housing Numbers: The Good News is Q4 Is Over

We are almost at the end of February and the FHFA and the S&P/Case Shiller numbers are just now reporting the 2008 fourth quarter. We knew that Q4 was not going to be pretty as earlier indicators suggested, so we should not be surprised with the disappointing numbers for what is typically the slowest quarter for housing activity. And don't forget the Presidential Election was thrown in there as well.

The Federal Housing Finance Agency's report, RECORD HOME PRICE DECLINES IN FOURTH QUARTER;ISOLATED POCKETS OF STRENGTH is 85 pages of pure data, charts, and graphs. Here are the top-of-the pile points:

1. Prices fell over the last four quarters in 44 states and Washington, D.C.

2. Four-quarter price declines exceeded five percent in 22 states and were in excess of 10 percent in eight states.

3. All nine Census Divisions experienced price declines in the latest quarter. Prices were weakest in the Pacific Census Division, which experienced a 7.1 percent seasonally-adjusted price decline in the quarter and the West South Division was strongest, with a seasonally-adjusted decline of 0.9 percent.

From S&P/Case-Shiller Index:

The S&P/Case-Shiller U.S. National Home Price Index declined 18.2% during the final quarter of 2008, the biggest annual decline in the index's 21-year history.

Separately, for the month of December alone the Case-Shiller 20-City Composite Index fell 18.5% compared with the previous December, also a record decline. The most severe declines were in Phoenix, Las Vegas, and San Francisco, which all dropped by more than 30% in December compared with December 2007.

Below is a CNBC video that reviews the just released numbers for Q4 from S&P Case/Shiller. If you do not see the video click here and query for the post title.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Conforming Loan Limits Increased - For Some

Barney Frank said he would see to it that the conforming loan limits were increased back to their late 2008 levels, and so it is.

As part of the American Recovery and Reinvestment Act (ARRA) which was signed into law on Tuesday, the conforming limits for loans originated in 2009 were increased for some areas. The increase affects 250 counties where housing costs are at, on average, higher than the rest of the country. In those areas the Fannie Mae and Freddie Mac maximum loan limits will return to the late-2008 level of $729,750. The conforming loan limit in the rest of the country remains unchanged at $417,000.

This definitely helps the areas where the loan limits were increased. But availability of jumbo loan product and the applicable rates remain an issue and a real pressure point for the luxury market.

The links below will provide the county limits.

Loan Limits for 2009 Mortgage Originations -- All Counties

Loan Limits for 2009 Mortgage Originations -- High-Cost Areas

Worthy Nods

Carnival Celebrations - The sad state of the economy doesn't appear to be affecting the party mood in New Orleans. Hotel bookings are on pace with last year, and the city is looking for between 700,000 and 800,000 Mardi Gras visitors this year -- at least as many as 2008. I haven't heard the reports from far-flung Carnival celebrations, but I'm sure the parties rage on around the world. It's good to know there is a party somewhere.


Here are this week's Worthy Nods from the news and from around the blogs ...

Wall Street Journal: Severely "Underwater" and Jumbo Borrowers May Not Get Relief - The have-nots in the Obama housing relief program are those borrowers whose house value exceeds 105% of the first mortgage and those borrowers with jumbo loans. Combined, these two groups of borrowers could be as much as 30% of mortgage holders. Of course not all of these borrowers will default, but they are considered risky by data crunchers.

New York Times: Laid-Off Foreigners Flee as Dubai Spirals Down - This is an absolutely fascinating account of Dubai after the real estate bubble burst. You know the bubble that they said would never bust. And it is a darn blood bath there in real estate terms, although the government is attempting damage control by restricting their press. With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars (many Mercedes) sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). 90% of the foreign workers were laid-off. Read on ...

The Huffington Post: The Housing Slump Creates Problems for Seniors Who Need to Sell - Seniors who need to transition into a structured care facility are finding it difficult to manage between houses not selling and falling property values. Take a look at some of the options seniors are utilizing.

New York Times: Defining the Buyer of the Future - What to expect after the current housing turmoil abates? When things get back to normal, what will the new normal look like? The answer, "very different."

NewsWeek: The Quitter Economy - Businesses are liquidating: homeowners are mailing in their keys. "Companies, homeowners and money managers willing to quit rather than fight is both a symptom of the nation's deep economic woes and emblematic of the challenge the Obama administration faces." Worthwhile commentary.

Calculated Risk: U.S. Vehicle Miles Driven off 3.6% in 2008 - And why exactly do you care? This decline, deeper than 1979/80, impacts where people buy in relation to commutes. 2008 saw 107.9 billion fewer vehicle miles driven from 2007. VMD also come into play as far as reducing the carbon footprint.

Wall Street Journal: FAQ: Who Qualifies for Housing Bailout

Atlanta Business Chronicle: Corus Slapped With Written Agreement - Chicago-based Corus Bankshares Inc. has been placed under a new highly restrictive regulatory oversight plan by the Federal Reserve Bank of Chicago. Corus is the main lender on several of Atlanta’s largest and highest-profile condo projects just as the market declines to the worst sales figures in decades. The company is on the hook for $533 million in loans on 11 condo projects just in Atlanta. Click here to read more.

Wall Street Journal: Is Chinese Drywall the New Mold? - With all our other worries, this story has been relegated to the back pages, but it may be your next nightmare. The building industry is being hit by a bevy of lawsuits over drywall, manufactured in China, that appears to be emitting nasty smelling, corrosive gases into people’s homes.

The Daily Beast: The 10 Most Horrendous Oscar Gowns in History - For those of you who like a good train wreck, take a look at these disastrous fashion faux pas from past Oscar ceremonies.

Mark-to-Market - The Axiom of Unintended Consequences

I wouldn’t normally consider discussing accounting except that, right or wrong, the mark-to-market accounting rule for financial institutions is a huge underlying reason that our economy is in the crapper. So even though you think this timely topic ranks right along with watching paint dry, I implore you to stay with me for a worthwhile discussion. We need to know this stuff; it is at the very core of our business.

I even asked CPA and financial advisor, Joe Rollins, to lend his expertise to the implications of mark-to-market accounting to the immediate and ongoing health of our financial institutions and economic recovery.

The mark-to-market discussions seemed to have gone underground, until this week when the talk of nationalization of the banks have brought the dissolution of the m-to-m rule back to the forefront. When the financial crisis was first settling into our consciousness, on the heels of increasing housing problems, one issue that was loudly debated from the rooftops was this accounting rule. Many economists believed that much of the financial crisis was exacerbated by the mark-to-market accounting rule by creating massive, and unnecessary losses for financial firms. These losses, caused because the current price of many illiquid securities, were well below the true hold-to-maturity value, could have been avoided.

Mark-to-market, or fair-value, accounting requires banks to carry assets, such as mortgage-backed securities, on their books at their current values. Critics contend this has made the current financial crisis worse by forcing banks to slash the value of assets that have been severely depressed by market conditions.

The Obama administration's overhaul of the $700 billion financial bailout program announced last week did not include any proposal to modify the mark-to-market rules during. Some analysts said that omission contributed to the market's big plunge immediately after the plan was unveiled by Treasury Secretary Timothy Geithner. The Washington Post

Of course nothing regarding our financial problems is simple and the argument rages on both sides of transparency and unnecessary asset devaluation.

Below is an excerpt from the Rollins Financial blog, “ ‘Mark-to-Market’ – More Than You Ever Wanted to Know”, penned by Joe Rollins. The mark-to-market rule in 2007 replaced the uptick accounting rule and Joe puts “what we need to know” on the subject in perspective. We need to know and understand this issue. The root of this crisis is bad mortgage loans, but much of the real crisis that we face today is caused by mark-to-market accounting in an illiquid market.

This is very timely discussion considering that the stock markets have not responded to Obama's stimulus and rescue plans (not responded is an understatement.) The financials have headed south further than was thought possible and the talk of nationalization of the banks, even temporarily, is scary beyond belief. Obviously the solution also needs to come beyond the government. As I complete this post for publication a discussion on reverting the mark-to-market to the uptick rule is taking place on CNBC.


After the uptick rule was suspended in July of 2007, there were no barriers to the people that short the market (sell before they purchase the stock) or elect to force a company out of business by coercion. They, in concert with others (which is illegal), can essentially sell down a stock until it’s worthless. Notwithstanding the financial performance of that stock, short sellers are not taking on any risk by continuing to short it since there are no administrative means to prevent them from doing so. Look at Fannie Mae and Freddie Mac, Bears Stearns & Company, Lehman Brothers, Wachovia, and (almost) CitiBank and how not having the uptick rule in place has damaged those companies that were once the backbone of American finance.

The uptick rule worked for the first 78 years that the stock market was open, but since it was suspended almost two years ago, investors have been destroyed due to a lack of administrative oversight. A tremendous amount of damage has been done to the financial institutions of our country due to this lack of oversight, and a tremendous amount of assistance could be offered to this group of companies if only someone would take the time to determine what would be in the best interest of the country as a whole.

The stock market opened on October 9, 2007 at its height of 14,163. Today, the Dow Industrial Average stands at 7,500, down a whopping 47% in the intervening 18 months. The accounting profession dictated that the financial instruments held by banks were required to be valued on a mark-to-market basis for publicly traded companies effective November 15, 2007. Therefore, essentially all banks and financial institutions were required to revalue these long-term assets effective January 1, 2008.

If you believe that the decline in the stock market and the implementation of the mark-to-market rules is just an unfortunate and ugly coincidence, then I wonder if you have also purchased beachfront land in Arizona and still believe in the Tooth Fairy. Unfortunately, the suspension of the uptick rule and the implementation of the mark-to-market rules have very much temporarily destroyed the financial security of many investors.

There’s a simple example to illustrate the mark-to-market issue: A company owns a building that leases to a third party and it receives rent on that building. For general accounting rules, this building would be amortized over its available life and the value would be marked down based upon general depreciation rules of 40 years or so since it is a long-term asset. At the end of its depreciation life, its value would be determined based on what it can be sold for in the open market.

Now, assume that next door to that building is another building that’s exactly the same and that is rented out for exactly the same rent amount. The only difference is that the second building is owned by a distressed landlord. Due to financial circumstances beyond the landlord’s control, he is required to sell that building at a 40% discount to the true underlying fair market value of that particular building. Even though the first landlord had nothing whatsoever to do with the actions of the second landlord, what if the first landlord is required under current accounting rules to take a 40% loss on his building, even though the true value of that building has not been diminished and he had done nothing?

Here’s another example using a financial instrument: Let’s say that we have two identical holders of a 30-year bond from the country XYZ. This bond requires that interest be paid on a semi-annual basis, and the financial stability of the debtor is not in question. However, this bond is very rarely traded, and in fact, due to its limited trading activity, it has virtually no market value. The underlying interest rate on this bond is 5%.

During the bond’s life, its value moves up and down dramatically based upon current interest rates in the market. If current market interest rates jump up to 10%, the implicit value of the bond would have to fall to match its 5% coupon rate. However, the owner of this bond has the capacity and the desire to hold the bond until maturity when he will receive the full value of the principal invested along with the annual 5% interest for the entire 30 years.

As with the building example, another holder of this bond gets into financial difficulty and sells his bond on the open market at a 40% discount. Does the first bond owner really incur a loss of 40% of his principal even though he has received all of the interest payments and has good assurances that he will receive his full principal at maturity?

As the two foregoing examples illustrate, valuing long-term assets is an inexact science. For the holder of the stock of a company that holds either of these assets, I would vigorously argue that neither of their values has been diminished by the actions of the other similar holders. However, this is exactly what has happened to the banks in our country since January 1, 2008.

For those in the financial markets who continue to argue that it is important for us to know the exact value of the underlying assets, it is interesting to note that in the first 200 years of our existence, we got along just fine under the old accounting rules. There were almost no banks that went out of business in the United States from 1996 through 2006. However, we are now up to approximately 30 banks that have failed in just an 18-month period. These bank failures correspond almost exactly with the implementation of the mark-to-market rules on November 15, 2007. Coincidence? Unequivocally not.

Beginning January 1, 2008, the banks were under a completely different set of accounting rules. Their cash flow had not been impacted, their liquidity was exactly the same and their financial positions on a long-term basis were just as stable as they were on December 31, 2007. However, beginning on that day, they were required to write-down billions of dollars of assets that they fully intended to hold to maturity. These assets weren’t bad; there was just no market for them. Additionally, the bonds in question continued to perform favorably, but the banks were now required to write them down 30% to 50% based upon an illiquid market where the bonds could not be openly sold.

First, it’s important to realize the impact of this transaction on banking in general. Since the banks can essentially lend 10 times their capital, the lending capabilities of the entire financial structure in the United States were immediately and dramatically diminished. If banks wrote down $500 billion in these assets, the U.S. lost $5 trillion in lending capacity. Nothing had changed, but since their capital had eroded they could no longer lend as much money as they were able to only one year (or even one month) previous. One minor change in the rules essentially made the banks insolvent. I guess that’s the axiom of unintended consequences, and if it were not so serious, it might even be funny.

The financial markets immediately began reeling on the effect of this transaction. Financial commentators throughout the world commented that all the banks were now insolvent and had no ability to carry on. I’m betting they were shorting the stock or did not understanding basic accounting. What is interesting is that nothing had actually happened and then the banks go from having excess financial capital on December 31, 2007 to being insolvent (at least by this definition) at January 1, 2008. One day does not equal insolvency. Many of our banking institutions have been destroyed due to an ill-informed, ill-applied and overly-cautious accounting rule.

There’s a simple solution to this issue, and it’s one that could be signed by Congress, the Chairman of the FDIC or the Federal Reserve Chairman tomorrow. It would require no special legislation, no specific Congressional approval or any type of intuitive thinking. We could allow the accountants to take their pessimistic and gloomy analyses and continue to reflect them on the financial statements for the world to know. This information could be disclosed in massive detail that only the nerdiest of nerds would understand. We could create transparency of information unlike any ever created before, and we could make this information available to each and every person who wanted to evaluate it, understand it, and act on it if anyone actually cared. However, we would not charge these write-downs against their regulatory capital and therefore, not reduce the bank’s lending capacity.

For those of you who continue to argue that it is important to value your assets on a fair market value basis, I want to point out that we have never done so before, so why is it so important now? This solution would solve everyone’s issues. The accountants and financial analysts would still have the information they need to evaluate the specific banks. However, the banks would have the regulatory capital to continue to lend, which ultimately supports the U.S. economy and how they make money. It’s amazing to me that a solution this simple seems so foreign to a government that has become too big to function.

If you think that mark-to-market has not been detrimental, just think about Wachovia and CitiBank. These are two of the most successful banking enterprises of our lifetimes, and they’ve essentially been put out of business due to this simple accounting mistake. I, for one, believe that the banks are little changed from where they were a few years ago. While it’s true that they’ll have bad debts due to the recession, I think these amounts are fully accounted for in their reserves for bad debts. These banks have gone through many recessions before and survived. What’s different now?

In fact, I believe that the banks are little different than they were on December 31, 2007, except the owners of these financial instrument’s common stock have lost 90% of their value due to the combination of bad accounting under the mark-to-market rule and the inability of our government to enforce guidelines on short selling and the uptick rule.

I think that if the simple solutions I’ve suggested are implemented, this big problem would be easily solved. Questions by inept, uneducated and overly political government officials and administrators welcome… Joe Rollins

CNBC's Rick Santelli Gets Whipped Up on Recovery

Have you noticed how scrappy the guys have become on CNBC as the octo-boxes have become a mainstay? A healthy dose of conflict has infiltrated the staid financial news on the top rated cable channel as ratings have soared. But did ratings soar because the economy tanked or because CNBC went Hollywood?

My personal opinion is that when Cramer launched on his "They have no idea!!!!!!!" rant in August 2007, the publicity in its wake was so dramatic (the Today Show to nightly news), the CNBC news gods said, "I think we've got something here." It is amazing what good TV is made from a few heated arguments, shouts, and finger pointing in the heat of the moment. But Cramer's rant was honest.

Rick Santelli got caught up in the moment around Noon today when his dramatics landed him in the middle of another media frenzy like Cramer's famous moment. I've seen the Santelli video on several blogs, I've gotten several emails with a link, but even better I saw it in real time while on the treadmill. Yeap, I procrastinated until Noon then finally drug myself downstairs to get a little exercise while CNBC raged and the markets fell.

What was all the fuss about? The new controversial housing recovery plan to resuce troubled homeowners. Santelli is not a fan.

If you haven't already seen this ad nauseam, take a look at today's rant from Rick:



"Want to subsidize the loosers?" Really, Rick. I'm sorry but Rick was egged on by all the guys behind him on the Chicago floor. The guys were cheerleaders and got Rick wound up for sure; he does have a tendency to get excited. He got carried away and now the video clip just made the NBC Nightly News with Brian Williams.

What nobody is reporting on is after CNBC replayed the clip about five times, a contrite Rick Santelli came on with a shrug and said he really wasn't as mad as he sounded. Rick Santelli, the new Revelutionary leader? Probably not, but I'll bet plenty he makes the Today Show tomorrow morning.

This rant has grown far beyond itself, but Rick is still one of my favorites on CNBC.

That's Hollywood. That's Wall Street.

White House Blog Best Source for the Skinny on the Housing Recovery Act

Below is a sampling of Questions and Answers from the The White House web site on the American Recovery and Reinvestment Act, aka, housing recovery plan along with corresponding related documents.

Here are some other documents to help immerse yourself into the housing recovery plans:

Homeowner Affordability and Stability Plan - Executive Summary

Fact Sheet

Example Sheet

Q&A

Questions and Answers for Borrowers about the
Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

* What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

* I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

* How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

* I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

* Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

To continue the Q&A, click here.

Prove It! Foreclosure Avoidance Tactic

Can two simple words forestall foreclosures? Apparently “Prove it” is the tactic du jour to delay the inevitable. "Produce the original mortgage documents to prove I owe you." So simple. Brilliant really if you're trying to circumvent the system.

If this “in your face” challenge can be delivered to a judge with a straight face, sans attitude, a borrower might just be able to remain in their house a little longer while the bankers and lawyers run down the paper trail.

The simple challenge of a borrower to a lender, “Prove I owe you” is enough to put bankers and servicers into an absolute tailspin. “Where are the papers?” Who knows. Things moved so fast over the boom years that no one can tell where the supporting mortgage documents might be stashed. If it weren’t so serious, it would almost be laughable. Of course the securities are of record, but it makes a good story.

As a matter of fact, the idea of bankers scurrying to find the mortgage documents brings to mind the White Rabbit in Alice in Wonderland. He appears in Chapter 1 muttering, “Oh dear! Oh dear! I shall be too late!" as he shuffles off with Alice following him down the rabbit hole into Wonderland.

This simple “prove it” challenge goes to the heart of the problem with the complicated movements of mortgage debt and the machinations of the MBSs. During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. “In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed”, according to an Associated Press article.

“Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.”

"I'm going to hang on for dear life until they can prove to me it belongs to them," said a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. "I'll try everything I can because it's all I have left." AP

No data exists on how many homeowners have successfully used this “prove it” tactic to avoid foreclosure. Some judges are more sympathetic than others. Some homeowners are more compelling and persistent than others.

AP reports that Chris Hoyer, a Tampa lawyer whose Consumer Warning Network Web site offers the free court documents used to file a request for original security documents, “has played a major role in promoting the produce-the-note strategy.”

"We knew early on that the only relief that would ever come to people would be to the people who were in their houses," Hoyer said. "Nobody was going to fashion any relief for people who have already lost their houses. So your only hope was to hang on any way you could."

For many of those people who have managed to hold on, the posse has arrived with a rescue plan to the tune of $75 billion.

NAHB Housing Stats At a Glance - 2/09

As the housing markets continue to correct and buyers are in short supply, it is no surprise that housing starts decline as builders continue to pull back. Below is a compilation of statistics published by the National Association of Home Builders as of February 18, '09:

Housing starts fell 17 percent in January to an annual rate of 466,000 while building permits, an indicator of future construction, decreased 5 percent to 521,000. Both figures were considerably below year-earlier figures. Construction of single-family homes, which include both detached and attached units, declined 12 percent between December and January to a 347,000 annual rate. Work on multifamily housing dropped 28 percent from the prior month to a 119,000 level.




From the Seider's Report:

"NAHB’s baseline forecast for the U.S. economy and the labor market in 2009 shows a very difficult year overall, despite our fiscal and monetary policy assumptions. However, we also believe that 2009 will be a major transitional period for the U.S., paving the way for recovery in 2010 followed by a run of above-trend years in growth of output (real GDP) and employment as economic slack is worked down in a low-inflation environment. "


And from the NAHB study, How Long Buyers Remain in Their Home:

Worthy Nods

This week's Worthy Nods from the news and from around the blogs:

New York Times: Defining the Buyer of the Future - "What will the new normal look like?” Look for two strong trends — childlessness and economy-mindedness — which combined will have a “topsy-turvy” effect on what has traditionally been considered the most desirable type of housing: the spacious single-family home in a suburban town with great schools. Other factors increasingly important to buyers, as documented by both the Otteau reports and research from the Rutgers University public policy school, are energy costs, commuting time and the availability of mass transit. All these elements enhance the appeal of urban settings. We shouldn't be surprised; these demographic changes have been evolving for some time.

The Washington Post: From Fannie and Freddie, Here Come the Fee Increases - Who has 25 to 30 percent for a down payment these days? Fannie Mae and Freddie Mac are ratcheting up their mandatory fees and toughening credit score and down-payment rules as of April 1. Under Fannie's and Freddie's new guidelines, even applicants who assumed that their FICO credit scores would get them favorable rates will be charged more unless they can come up with down payments of 30 percent or more. For example, a buyer with a 699 FICO score who brings a sizable down payment of about 25 percent to the table will be hit with a 1.5 percent "delivery" fee at closing under the new guidelines. Loan for condos will also carry higher fees.

Wall Street Journal/Opinion: A Republican Fannie Mae - "The worst mortgage idea since Barney Frank's last one." Read this editorial on the heels of Washington Post article above and tell me what portion of this makes any sense at all.

Housing Wire: Multifamily and Commercial Loan Originations Plunge 80 Percent - Fourth-quarter 2008 originations for commercial and multifamily mortgages were a whopping 80 percent lower than the same period the prior year, according to a quarterly survey released Tuesday by the Mortgage Bankers Association. When compared to fourth-quarter 2007, the overall 80 percent decrease included an 82 percent decrease in loans for retail properties, a 76 percent decrease in loans for industrial properties, a 72 percent drop in loans for office properties and a 62 percent decrease in multifamily property loans.

Wall Street Journal/Developments: Rescue Plan Leaves Out Jumbo Mortgage Borrowers - While jumbo loan borrowers may not live on Main Street, there are plenty of them on the cul-de-sacs, and not considering them somewhere in the financial rescue debates is a mistake. Outside of Fannie and Freddie, the jumbo loan product is off the radar screen, or so it seems. Jumbo loans have no secondary market in which to sell so jumbo loans have to be held in the lender's portfolio as dead weight. Jumbos are now considered as subprime and carry high interest rates and huge down payment requirements. Many consider the properties secured by jumbo loans to be the next shoe to drop on the already stressed-to-the-max foreclosure market, partly as a result of the frozen jumbo credit sources.

The New York Times: Foreclosing on Skyscrapers - "While industry after industry is being battered by the global recession, new data just released by the Council on Tall Buildings and Urban Habitat (CTBUH) shows that the number and height of tall buildings completed in 2008 was greater than any other year in history." This is not good news. Those last to the boom party are at the greatest risk of succumbing to the financial crisis as evidenced by recent headlines announcing foreclosure on some of the country's office icons. Unfortunately this may just be the beginning.

Wall Street Journal: Fed Calls Gain in Family Wealth a Mirage - According to a survey of consumer finances, the rosy financial picture for many American families wasn't as rosy as believed. Households net worth increased 17 percent between the end of 2004 and 2007 but the gains were wiped out by the collapse in housing and stock prices last year. The new survey offers one of the first glimpses of how American families were positioned financially as the roof fell in on the economy, and it provides some sense of how much wealth has been destroyed since then. Indeed, the destruction of wealth is still in full swing: housing prices are still falling, more than two years after the bubble peaked.

Wall Street Journal/Real Estate: Foreclosure 'Tsunami' Hits Mortgage-Servicing Firms - A tale of unexpected consequences. Short version: Carrington, a hedge fund that bought mortgage backed securities being serviced by American Home Mortgage, is suing the mortgage servicer for "self-dealing" by unnecessarily foreclosing upon and liquidating homes in default. Carrington contends it suffered millions of dollars in damages because American Home Mortgage improperly conducted rapid-fire sales of homes within the mortgage pools at "unduly low amounts" in an effort to repay debt. Carrington alleges it had contractual rights to direct and control the foreclosure and liquidation process and that American Home Mortgage breached its fiduciary duties. In its suit, Carrington said American Home Mortgage "began liquidating...properties at an extremely rapid rate" in what amounted to "fire sales" that diminished the value of their assets. There's going to be a lot more of unexpected problems coming down the road as a result of this very complicated unraveling of unexpected consequences.

The Business Insider: Musak Files For Chapter 11 - What can I say except, "So sorry. So sad. Truly."