Monday, August 23, 2010

HAMP & The Financial Sector Are WIDE RIGHT.

You know what? Scott Norwood is a hero. The Buffalo Bills really did beat the Giants in the Super Bowl. Wide Right is a miss statement. Don't you know that the officials moved the goalposts wider and the 47 yard field goal easily split the posts? Yes. History has been retold, edited, and changed.

This may sound ridiculous to many but its pretty much status quo for the Treasury Departments HAMP program. This program was originally spun to keep homeowners in their homes via mortgage modifications. But the HAMP program is not doing its mandate.

So what do you do when the stated objective hasn't been achieved? Change the rules mid game and re spin it. If at first you don't succeed, just move the goalposts. 

HAMP should be called "The Great Stimulus Game Gone Wrong". HAMP from the beginning was a backdoor bailout for the banks. They spun it by saying that it was a way for homeowners to stay in their homes. After this failed for the homeowner they have changed the narrative to extending foreclosure. What is consistent is that the backdoor bailout continues. This is simply unacceptable that the Treasury first of all is still nefariously bailing out insolvent financial institutions, that they are using taxpayer dollars now to smooth out the foreclosure process is more infuriating.

This was the original narrative:

Relief for Responsible Homeowners One Step Closer Under New Treasury Guidelines

That HAMP was for responsible homeowners who are in financial distress. What it really states is that its a plan to aid banks. This is the unofficial policy of HAMP. Its a taxpayer funded giveaway to every one on on the banking totem pole. After this failed as many trial modifications are failing and new modifications are not even being processed, is lets now actually figure that foreclosures are a problem and that the best way to manage them is to just spread them out. If this sounds like extend and pretend, you win a scoobie snack. The banks do not want any more foreclosed inventory on their books, this is the reason that foreclosure activity is lagging delinquencies.

The time from the 1st missed mortgage payment to liquidation used to be about 14M for loans liquidated in mid-2008.  It’s now about 20 months. This is extend and pretend in action.  So you can effectively not pay your mortgage for almost 2 years and still stay in your house. The banks don't care because they are skimming taxpayer money on bogus HAMP modifications and riding the Yield Curve because rates are near zero.

But the curve is getting flatter as yields are plummeting. ZIRP and stimulus are at the Keynesian end game. Treasury as well as the banking sector thought they can just ignite animal spirits and have home prices bubble up again. This is failing as foreclosures are ramping up. This will cause another down led for banks which lead the economy into another recession. The banks are not ready for this. REPEAT! The banks are not ready for this. They waited and expected things to get better because of course expanding the money supply always stokes inflation and animal spirits. All of the major banks have lowered their loan loss reserve figures expecting the economy and housing to rebound. This was the primary earnings driver for the banks last quarter. The banks were bleeding back loan loss reserves back on to their net income statements and ponyng it off as great banking execution. The analysts ate it up like Vegas Hookers at a free buffet. As the economy and housing do a Greg Louganis over the cliff, the banks are exposed to more devastating losses. The earnings estimates are too high, they have to come down. The loan loss provisions are too low, they have to go up. Roughly 75% of the earnings growth for the SP 500 the last year has been from the financial sector and this is largely government sponsored.

All in all I am amused that many think the market is cheap. Yes it is. Cheap like a Vegas Hooker.

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