by Calculated Risk on 6/13/2009 01:25:00 PM

From The Telegraph: US cities may have to be bulldozed in order to survive (ht Chad, Brian)

The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.

Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.

The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint.

Having outlined his strategy to Barack Obama during the election campaign, Mr Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country.

Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.

Most are former industrial cities in the "rust belt" of America's Mid-West and North East. They include Detroit, Philadelphia, Pittsburgh, Baltimore and Memphis.

In Detroit ... there are already plans to split it into a collection of small urban centres separated from each other by countryside.

"The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity."

by Calculated Risk on 6/13/2009 08:44:00 AM

Fitch expects "home prices will fall an additional 12.5% nationally and 36% in California" from Q1 2009.

And, oh, you remember subprime?

From HousingWire: Subprime Bloodletting Continues at Fitch

Fitch Ratings today made massive downgrades on various vintage ‘05 through ‘08 subprime residential mortgage-backed securities (RMBS), indicating the extent of the fallout related to subprime defaults has yet to subside.

The rating agency slashed hundreds of RMBS ratings further into junk territory.

Here is the Fitch statement: Fitch Takes Various Actions on 543 2005-2008 U.S. Subprime RMBS Deals

On home prices:

The projected losses also reflect an assumption that from the first quarter of 2009, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010. To date, national home prices have declined by 27%. Fitch Rating's revised peak-to-trough expectation is for prices to decline by 36% from the peak price achieved in mid-2006. The additional 9% decline represents a 12.5% decline from today's levels.

In explaining the downgrades, Fitch said the actions reflect updated loss expectations and further economic deterioration:

“The home price declines to date have resulted in negative equity for approximately 50% of the remaining performing borrowers in the 2005-2007 vintages. In addition to continued home price deterioration, unemployment has risen significantly since the third quarter of last year, particularly in California where the unemployment rate has jumped from 7.8% to 11%.”

by Calculated Risk on 6/12/2009 10:54:00 PM

"The conventional view is that housing appreciation is good because it reduces (default) risk. Not according to my theory, which is housing appreciation is bad. It encourages junior-lien borrowing. When appreciation stops, somebody is going to be left in a bad position."
Michael LaCour-Little, finance professor at Cal State Fullerton (emphasis added)

From Matt Padilla at the O.C. Register: Second mortgages: Lines of danger?

Record foreclosures hitting Orange County involve more than just newbie buyers who got in over their heads.

Some housing watchers say evidence is mounting that even veteran homeowners got caught up in housing euphoria and now are paying for it.

The latest argument comes from Michael LaCour-Little, a finance professor at Cal State Fullerton. He is lead author of a new study, which found that during the housing boom some long-time owners borrowed against all their property's equity gain, or paper profits. They treated their houses like cash machines.
...
It's long been assumed that homebuyers who purchased at housing's peak with little money down are among the most likely to face foreclosure. They owed more than their property was worth once prices tanked.

But the study concludes 'cashing-out' is about as predictive of foreclosure for the same reason: negative equity.

And look at these numbers:

Professor LaCour-Little tracked all houses and condos set for foreclosure auctions, known as trustee's sales, in the first two weeks of November 2006, 2007 and 2008 in Orange, Los Angeles, Riverside, San Bernardino and San Diego counties. ...

For the early November 2008 data sample, he tracked 2,358 properties and found 79 percent of borrowers had at least a second mortgage. Some also had third and fourth liens. ...

The 2008 foreclosures were purchased in "median" year 2004, meaning half the purchases were before and half after. That suggests more than half the purchases were before housing's peak in 2005 and 2006.

There will be many foreclosures of homes bought before the bubble (or in the early stages of the bubble), because the homeowners extracted too much equity from the home. This is not surprising, but probably means more foreclosures than policymakers expect.

by Calculated Risk on 6/12/2009 09:36:00 PM

Since the FDIC cancelled Friday ... here is Senator Voinovich showing us his charting skills.

by Calculated Risk on 6/12/2009 06:27:00 PM

From Forbes: Bair Cautions Banking Crisis Is Not Over (ht jb)

Sheila Bair ... said Friday that while the crisis that swept through the financial world last year has subsided somewhat, it was far from over and there would be "many more bank failures" ahead.

"I think there's still some challenges, I think we need to be realistic. There are still some troubled assets on the books and we still have an economy that's under significant stress," said Bair in a 90-minute interview with Forbes reporters and editors on Friday.

We still don't know how deep the recession is going to be," she said, adding, "we'll still be well below what we were in the S&L days."
...
"Hopefully there are no more events that create liquidity stresses on the banks," Bair said, knocking on a wooden conference room table, "and now we're having more good old-fashioned capital insolvencies."

... she worried aloud about the current trend toward making the Federal Reserve banking's regulator-in-chief. ... "No other developed country gives their central bank the kind of power we give our central bank," Bair said.

"[The Fed] had authority to prescribe across-the-board lending standards for mortgages, and a lot of people said they should do that and they just didn't," Bair says as an example of where too many roles led to lapses. "Where does the consumer role go on your priority list? At some point it just doesn't get done. It just doesn't get the focus it should."