Job losses are shifting the foreclosure trend to regions that were previously unscathed.

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Putting up another post all too quickly between conference sessions: : This between Edmund Conway and Andrew Lilico on the Today programme on the alleged crisis in economics seems to me to rest upon a misunderstanding of what economics is. Conway says the crisis has been “an earthquake for economic thought” and Lilico says we need “new theories.“ This, though, seems to regard economics as a settled but inadequate body of knowledge and theory. It’s not. It is instead a vast number of diverse insights. What’s more, all of the insights that help explain the current economic crisis were, in truth, well known to economists before 2007, for example: Risk cannot be simply described by a bell curve. But we learnt about tail risk on . And we learnt from the collapse of in 1998 that correlation risk, liquidity risk and counterparty risk are all significant. Assets can be mispriced. But we’ve known about bubbles for centuries - since at least Their existence does not disprove the efficient market hypothesis; as , the EMH is not the rational investor hypothesis. Nor, contrary to Conway’s implicit claim, is the EMH inconsistent with the possibility that behaviour can be swayed by emotions; the EMH allows for the possibility of time-varying risk premia* Long periods of economic stability can lead to greater risk-taking. We’ve known this (at least) . Banks can suffer catastrophic losses - which are correlated across banks. We learnt this - not for the first time - in the Latin American debt crisis of the early 80s and in the crises in Japan and the Nordic countries in the early 90s. Banking crises are a of even developed economies. Institutions, such as banks, can be undermined by badly designed incentives. But there’s a huge literature on the principal-agent . The current crisis, then, has not thrown up much that economists didn’t know. Instead, our problem is a different one. It’s that what we have are lots of mechanisms, capable of explaining why things happen and the links between...

Check out all the great contributions that were published during the past week on RGE’s , , , , , , , , and . This week on , Nouriel makes the case for Ben Bernanke’s reappointment. Considering his initial missteps and miscalculations, Mr. Bernanke, through his creative and aggressive actions, engineered a u-turn in Fed policy, which prevented the crisis from turning into a near depression, thus earning him a role in managing the Fed’s exit. See . Don’t miss Fareed Zakaria’s interview with Nouriel, Mortimer Zuckerman and Niall Ferguson as they discuss the U.S. economy. See . On the , in a short preview of RGE’s Q2 Economic Outlook, Mary Stokes and Elisa Parisi-Capone present a concise assessment of risks and growth opportunities for the Eurozone, the UK, the Nordics, as well as Central and Eastern European countries and the Baltics. The bottom line is that --with a few exceptions-- Europe as a region is likely to lag the recovery in the BRICS and in the U.S. See . Before Chinese and U.S. officials sat down this week for high-level economic and strategic meetings, Rachel Ziemba and Adam Wolfe looked at “” China and the U.S. might be in rough agreement on short- and long-term issues, but diverge widely in the middle. On the , Lucian Bebchuk argues that Goldman Sachs should put the $11.4 billion set aside for compensation in a company account for an extended period of time and it should be adjusted downwards if performance falters. If these huge bonuses are allowed to be immediately cashed out, the distorted incentives for short-term performance would still be in place despite Goldman’s adoption of new compensation principles. Read . In , Robert Reich looks at the stock market, which has climbed over 9,000 for the first time since early January, and he urges caution. As employment and underemployment keep rising, the real economy suggests that Wall Street’s cheerleading of profits coming from dramatic cost-cutting is underwhelming. In , Joseph Mason looks at mortgage servicers...

Actually more than half off of the loan amount ... From Silicon Valley / San Jose Business Journal: (ht Ross) Note: the building is actually in Sunnyvale. California Bavarian Corp.’s Bordeaux Centre has been sold at auction to its lender Wrightwood Capital for less than $15 million. Developer Mark Mordell, president of Cal Bavarian, ... said he was told the campus sold for less than half the $34 million debt owed on the never-occupied, 124,000-square-foot project begun by Cal Bavarian in 2007 and finished in 2008 This is another never occupied commercial building - like the ones us in San Diego last night. The Feed is full length. The Feed is Ad Free. And by request , on the last day of each month, if you like what you see, here is a tip jar - to leave a tip. Thanks! CR

WASHINGTON - The U.S. Department of Housing and Urban Development today announced that it is charging an Atlanta condominium association, a local real estate company, and its agent with housing discrimination for refusing to sell to families with children. HUD's charge of violating the Fair Housing Act is against Georgian Manor Condominium Association, Inc., HN Real Estate Group, Jennifer Sherrouse, and the Estate of Jean Branch.

Posted By: An article in the New York Times today, suggesting that loan servicers would rather collect hefty fees on loans in delinquency and foreclosure than modify those loans, set off a bit of a firestorm in the community that oversees all those modifications. Folks at the Mortgage Bankers Association, who only yesterday had been defending servicers who were hauled before the Treasury Dept for a little kick in the you know where, expressed some disbelief. Topics: | | Sectors: |

*SEC IS EXAMINING FLASH ORDERS TO ENSURE FAIR ACCESS TO DATA 2009-07-30 19:04:18.188 GMT Next up: Dark Pools (hint, hint, Mary) Update: July 30 (Bloomberg) -- The U.S. Securities and Exchange Commission will review so-called flash orders used by four equity markets, Chief Executive Officer said. , the third-ranking Democrat in the U.S. Senate, told the SEC to review flash orders in a July 24 letter. Regulators told NYSE officials they will examine them, and based on those discussions it appears unlikely the SEC will impose curbs on other forms of high-speed trading, Niederauer said today in a conference call with analysts to discuss the New York-based company’s second-quarter results. “I don’t think there is any fear of them doing something that would severely damage the displayed liquidity on U.S. equity markets,” he said. “High-frequency trading is actually the most consistent source of liquidity.” [TD: Time for one more of those "" ads] , a spokesman for the SEC, didn’t return a telephone call seeking comment. Last month, SEC Chairman said the agency is concerned that electronic indications of bids and offers are being disseminated to a select group of brokerages. NYSE’s competitors -- Bats Global Markets, Direct Edge Holdings LLC and the CBOE Stock Exchange -- give information to their clients about orders for a fraction of a second before the trades are routed to rival platforms. , the world’s largest owner of stock exchanges, told the SEC in May that these flash orders result in most investors getting worse prices.

A mortgage fraud case in South Florida is similar to abuses seen during housing boom.

From the WSJ: GSEs Unlikely to Repay U.S. in Full ... "My view is that some assets in the senior preferred will have to be left behind as they come out of conservatorship," Federal Housing Finance Agency Director James B. Lockhart said Thursday in response to a question at a panel discussion in Washington. "That will mean that some of the losses will never be repaid." The Treasury has agreed to pump $200 billion into each company in order to keep them solvent. In exchange, the government receives senior preferred stock that pays a 10% dividend. So far, it has injected $85 billion in total into the companies, but Lockhart said that figure was likely to rise in the coming months. Fannie and Freddie together own or guarantee $5.4 trillion in mortgages. ... Mr. Lockhart said Fannie and Freddie would likely see their reserves continue to decline next year, but could return to strong profits in two to three years. I'm shocked!

The IRS is on the lookout for taxpayers and tax preparers skirting eligibility rules when claiming the $8,000 tax credit. Here's what you need to know.

We analyze the structure and attributes of subprime mortgage-backed securitization deals originated between 1997 and 2007. Our data set allows us to link loan-level data for over 6.7 million subprime loans to the securitization deals into which the loans were sold. We show that the securitization process, including the assignment of credit ratings, provided incentives for securitizing banks to purchase loans of poor credit quality in areas with high rates of house price appreciation. Increased demand from the secondary mortgage market for these types of loans appears to have facilitated easier credit in the primary mortgage market. To test this hypothesis, we identify an event which represents an external shock to the relative demand for subprime mortgages in the secondary market. We show that following the SEC's adoption of rules reducing capital requirements on certain broker dealers in 2004, five large deal underwriters disproportionately increased their purchasing activity relative to competing underwriters in ZIP codes with the highest realized rates of house price appreciation but lower average credit quality. We show that these loans subsequently defaulted at marginally higher rates. Finally, using the event as an instrument, we demonstrate a causal link between the demand for mortgages in the secondary mortgage market and the supply of subprime credit in the primary mortgage market.

HUD SECRETARY DONOVAN ANNOUNCES NEW FHA-MAKING HOME AFFORDABLE LOAN MODIFICATION GUIDELINES New FHA guidelines projected to help thousands avoid foreclosure per year

submits: Goldman Sachs () and Deutsche Bank () got served by the US Senate which is investigating fraud in the mortgage meltdown last year. Several other financial institutions may also have received subpoenas from the sub-committee that is headed by Senator Carl Levin. WSJ said the focus of the investigation is on whether internal communications show executives at the banks had private doubts on the soundness of the mortgage-related securities they were putting together. Anyone want to take a guess on what they will find?

First a graph from on Ventura County sales and inventory by price (Effective Demand covers Ventura and the San Fernando Valley in LA) Click on graph for larger image in new window. This graph from Most of the activity is at the low end, and inventory is pretty low. This is true for many of the low-to-mid end areas. There are more foreclosures coming, but the timing is uncertain - will it be a flood, or will the banks just bleed the foreclosures into the market? But for the mid-to-high end - expect bad news! Not only is financing tight, but there is a dearth of move-up buyers. And from Bloomberg: [House Financial Services Committee Chairman Barney] Frank said he will re-attach the cram-down provisions to any new legislation requested by the industry, “unless we see a significant increase in mortgage modifications and foreclosure- avoidance.” ... Cram-downs let federal judges lengthen terms, cut interest rates and reduce mortgage balances of bankrupt homeowners, even if the lender objects. Not much on Corus or Guaranty Bank (Texas), although both will probably be seized by the FDIC soon. Talk about seizing: A company affiliated with Corus Bank seized the 216-unit Aventine at Boynton Beach apartment complex. In a July 16 filing in Palm Beach County Circuit Court, Aventine Marketing released Boynton Pinehurst from the $25 million remaining on its mortgage with the Chicago-based bank in exchange for the deed to the property. ... Boynton Pinehurst ... planned to convert Aventine into condos when it took a $37.2 million mortgage from Corus Bank in 2006. It paid $48 million for the property that year. Looks like another property with the value cut in half - and more apartments back on the market (aka "reconversions"). And here is another condo project being converted to apartments: (ht Rich and others) Millworks, a 420,882-square-foot residential/commercial project at De Long and Reichert avenues, had a grand opening in May but has only sold two of 124 condominiums...

Good Evening: Just as they have during 9 of the past 10 sessions, U.S. stocks suffered a setback in the morning, only to rally late in the day. Unlike so many recent sessions, however, all the major averages remained in the red as the closing bell rang on Wednesday. A sell off in China, some weakish economic data, falling commodity prices, and a poor 5 year note auction gave Mr. Market a list of reasons to retreat today. That he cedes ground only grudgingly is a testament to the old gentleman’s resilience, but it may also mean a larger move (up or down) is coming. The VIX, for example, is proving just as resistant to decline as are the main indexes. PIMCO’s Bill Gross would argue that the old man would be well advised to keep his pulse in check until nominal GDP growth shows some resilience of its own. The big news overnight was not earnings related, but China related. Whispers are flowing from Beijing that the central government either is, or soon will be, attempting to rein in the breakneck pace of lending by that nation’s banks. I have no idea whether these rumors will prove to be true, but they were given currency by a 5% fall in Chinese stock prices today, as well as by the large thumping delivered to the types of commodities China loves to consume. Then again, these moves could simply be a corrective head fake after long upside runs, so market participants will be watching China’s next PMI number (Thursday night) for clues. Since Chinese demand has been the fertilizer to the green shoots spotted here and in Europe, any threats to that demand will likely have a cooling effect on global risk appetites. U.S. stock index futures were thus on the defensive this morning when word hit the tape that Yahoo! and Microsoft had finally struck a deal. In an interesting display of how things have changed over the 20 month courtship between the two companies, Yahoo went from being the subject of a $40 billion takeover to simply sharing some search assets with MSFT. No cash will...

President Barack Obama attended a town hall meeting in North Carolina today. The primary focus was health care, but he also began with a look at state of the economy and a defense of the stimulus program. Here is an excerpt of his remarks on the economy. (.) President Obama in North Carolina. (Associated Press) So when I took office in January, I asked to see ten letters from people across the country every day. And most of the letters these days are all about one thing: the economy. So before I take your questions, I want to spend a few minutes talking about where we are and where we need to go. I don’t know whether you’ve seen the cover of the latest Newsweek magazine on the rack at the grocery store, but the cover says, “The Recession is Over.” I bet you found that news a little startling. I know I did. Now, it’s true that we’ve stopped the freefall. The market is up and the financial system is no longer on the verge of collapse. We’re losing jobs at nearly half the rate we were when I took office six months ago. So, we may be seeing the beginning of the end of the recession. But that’s little comfort if you’re one of the folks who have lost their job, and haven’t found another… So, we know the tough times aren’t over. But we also know that without the steps we have already taken, our troubled economy – and the pain it’s inflicting on North Carolina families – would be much worse… It will take time to achieve a complete recovery, and we will not rest until anyone who’s looking for work can find a job. But there is little debate that these steps, taken together, have helped stop our economic freefall.

Board publishes "5 Tips for Shopping for a Mortgage"

This should be the last of the Seasonal adjustment discussions, but note the difference between the two data runs: Non Seasonally Adjusted and Seasonally Adjusted . click for larger chart via Bianco Research ~~~ Give em a few secs to round up the media coverage