Finally broke down and joined Twitter

Somewhat ironically given my background with technology tend not to be a bleeding edge adopter.  Most people I know have more electronic gadgets on them at anyone time than I have in my whole house.  I sent my first text message EVER when I broke down and got an iPhone about 6 months ago.  Yes, I know gasp!!!

But, I've finally decided to make the plunge and join Twitter.  There goes any hope of productivity.  I've always found Twitter very fascinating, and have been looking at ways to integrate more closely into ActiveRain to provide a much more real-time interactive experience.  I've just avoided jumping into the pool myself up til now. I guess I just like being able to tune out from technology in my personal life.

If your curious my Twitter ID is ActiveRain_Matt

Treasury announces their Fannie, Freddie bailout

This evening the US Treasury just announced their rescue plan for mortgage giants Fannie Mae and Freddie Mac which combined insure over $5T in mortgages and are currently accounting for the majority of all mortgage lending taking place.  The three main points of the rescue plan:

1. The US Treasury with extend additional lines of credit to Fannie Mae and Freddie Mac.

2. Pending Congressional approval the US Treasury will purchase equity (either preferred or common stock) in Fannie and Freddie.

3. The Federal Reserve will open the discount window allowing Fannie and Freddie access to short term borrowing from the Federal Reserve.

While I'm VERY much anti-bailout, the simple fact is Fannie and Freddie are truly too big to fail, and the implications of their failures would be almost unimaginable.  The problem with this is at the same time they are almost too big to save, the true cost of US tax payers will at a minimum be several hundred billion, due to the massive size of their portfolios. Yes, in direct contridiction to claims made by these companies and some regulatory agencies these companies are already insolvent.

One of the key questions now is how does the bond market react to this rescue plan as it's going to require substantially more borrowing by the US government and with the US Treasury purchasing equity basically implies now that Fannie and Freddie stock will be part of the collateral behind US Treasury debt (Eeekkk).  There is a potential (I don't know how big) the bond market could respond by selling off hard as there is a flight away from long term US Treasury debt, which would substantially ramp interest rates.  We'll probably know the reaction pretty soon though.

Treasury statement on Fannie and Freddie

US Government Stops in to Rescue Mortgage Giants

IndyMac Fight: Schumer vs. The OTS and a Rant

As I'm sure everybody already knows yesterday the US experienced the second largest bank failure in our history as IndyMac was seized by the FDIC and OTS.  One of the first public statements by the OTS was to blame Chuck Schumer a member of the Senate banking committee a letter he sent to them with concerns about the financial stability of the bank, causing a run, which caused the bank to go under.

"The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York [that] ... expressed concerns about IndyMac's viability," the agency said.

Schumer immediately responded:

"If OTS had done its job as regulator and not let IndyMac's poor and loose lending practices continue, we wouldn't be where we are today," said Schumer, a Democrat from New York. "OTS should start doing its job to prevent future IndyMac's.

Lately, I've found it hard to agree with much of what Senators or Congressmen have done, but I've squarely in Schumer's court on this one.  The OTS and FDIC have been completely asleep at the wheel throughout this crisis putting bank depositors and US tax payers in harms way.  IndyMac has very clearly been an insolvent institution for some time and the only way they have been able to survive is by substantially increasing their deposit base the last year through offering someone the highest rates in the nation. Like a gambling addict that's found themselves substantially in the hole (due to massive bad loans), they continued to take loans (deposits) in order to try and gamble their way out of the crisis.  The FDIC and OTS are there to prevent this type of behavior that creates massive risks to the entire system, not support it. Where have the damn regulators been?

Of course the OTS made the standard claim:

"This institution failed today due to a liquidity crisis," OTS Director John Reich said.

Again, this is a bunch of bull, seriously everytime I here the regulators, politicians or journalists referring to these types of situations as liquidity crisis it makes me sick.  It's not a liquidity crisis, it's a solvency crisis.  Even by the FDIC's own admission the closure requires $4-8B of their funds.  Doesn't that imply IndyMac's liabilities are far and away in excess of their assets, yes that's the definition of being insolvent, not illiquid. 

Guess who's going to end up footing the bill for all of this, yes the US tax payer and the longer the regulators stand around twiddling their thumbs letting the risk takers continue to try and gamble their way out of problems the higher that bill is going to be and the greater the risk for a true financial collapse.  While the regulators are now trying to cover their own asses I actually applaud Schumer for forcing some action, whatever his intentions might have been.

The Countrywide saga continues, BAC moves debt to "indirect unit"

According to the Sacramento Business Journal:

"Bank of America Corp. has moved Countrywide Financial Corp.'s debt to an indirect unit owned by the banking giant, leaving it unclear whether BofA will back Countrywide's huge debts.

According to a filing this week with the Securities and Exchange Commission, Countrywide says Red Oak Merger Corp. assumed all of the Calabasas-based mortgage company's financial obligations in conjunction with the July 1 purchase of Countrywide by BofA for $2.5 billion.

BofA created Red Oak and remains its owner. Red Oak has since been renamed Countrywide Financial Corp."

Oh, jeeze they are going to try it after all, the bond holder lawsuits should be entertaining. Bank of America is trying to pick the good assets from Countrywide while leaving the crap in a holding company that will essentially end up going bankrupt leaving bond (bag) holders out of luck.  As I mentioned in a previous post this is the same strategy that some of the large asbestos manufacturers tried to get out from under billions in lawsuits and were denied by the courts.  I think a judge will find enough evidence that Bank of America knows about the liabilities here (especially after the state lawsuites) to unwind the transaction, or at least I hope a judge has enough sense to do that.

One question is how much of the $51B in debt owed to the Federal Home Loan Bank get transfered into this entity.  That could spell HUGE for the entire system if that gets defaulted on.

IndyMac officially seized by FDIC

As of about ten minutes ago, it's been made official the FDIC has closed down California based IndyMac Bank, who was one of the biggest ALT-A lenders over the last couple years. I believe this is the second largest bank failure in US history behind the Continental Illinois Bank failure back in 1984 who had $45B in assets compared to around $32B for Indymac.  The FDIC was unable to find a taker for the bank deposits and instead created a holding company (IndyMac Federal Bank) to manage them.

This one could have been seen a mile away but you still got to feel for those holding who had part of the $2B or so in uninsured deposits in the bank.  According to several sources there's had been a low scale run on the bank that had resulted in several hundred million in deposits being pulled during the last week pushing them over the edge. Though it was going to happen anyway due to massive losses on mortgages on their balance sheet.  They'd been able to stay alive as long as they did mainly by attracting large brokered depositors through offering the highest CD rates in the country.  Incidentally many of the banks that offer the highest CD rates tend to be the ones with the biggest looming problems.

Official FDIC announcement here:

http://www.fdic.gov/bank/individual/failed/IndyMac.htm

The states AG's pile on Countrywide

This morning, something happened many had a pretty good idea was in the works, the attorney generals for three states (California, Washington and Illinois) formally filed lawsuits against Countrywide for fraudulent or discrimatory lending practices. The filing of these lawsuit happened soon after Countrywide shareholders approved the planned acquisition by Bank of America, the timing without doubt not coindicental. 

These lawsuits have some very far reaching impacts, for example the Illinois one could Countrywide to take back tens of billions in bad loans which they securitized and sold.  The WA lawsuit was followed up with a call for ask regulators to withdraw its state license to do business in Washington.  In the past once one state pulls a lenders license usually all the others will pile on and do the same thing.

So what does this mean for the planned acquisition by Bank of America? 

I've been saying since it was announced I would be abolutely shocked if it closed, Bank of America would have to be smoking crack to take on the liabilities on Countrywide's balance sheet.  They are potentially large enough that they would take all of Bank of America down.

About a month ago it was divulged that Bank of America planned to keep all of the bad assets in a shell LLC, pick off the good parts and let the LLC go BK.  Of course the legality of this is very questionable and bond holders would get screwed instantly and be lining up to file lawsuits.   Several large firms tried this tactic in the past to get out from under billion in asbestos lawsuit liabilities and were slapped down by the bancruptcy courts.  With the state AG's filing these lawsuits Bank of America can no longer claim the liabilities are unknown and will turn any remaining chance of this working into road kill.  Now I think Bank of America's management has not to be just smoking crack but also mainlineingheroine to move forward with this deal.

6/30 Update: Florida has now thrown itself onto the Countrywide pig pile.  Tomorrow is the moment of truth as the Bank of America acquisition is supposed to close.

7/1 Update: It looks like the Bank of America acquisition did actually close, Ken Lewis decided to swallow the puffer fish whole, good luck with that...

Boy the indictments are starting to fly...

Up until yesterday there hadn't been much in the way of indictments related to the fall out of the mortgage mess and credit problems.  Boy, what a difference 48 hours makes.

More than 400 charged in mortgage probe

Yesterday the justice department brings charges against more than 400 individuals in a three month long investigation into mortgage fraud, including lending fraud, foreclosure rescue scams and mortgage-related bankrupcy scams.  The number of individuals charged is likey to grow substantially as the investigation continues, and I'm sure some of those charged start naming names.

Indictments handed out in Bear Stearns Fund Manager Case

Two managers to failed hedge funds at Bear Stearns have now been indicted by the FED's for concealing the problems from investors that lead to a near total loss.  The lieing that occurred here was so blatent I'm shocked that it took this long for the indictments to be handed down given the blow up officially ocurred back in Aug.  They were basically telling all the funds investors there was no problems while having internal conversations at the company about how bad things were.  You will see A LOT more cases like this, guarenteed.  The lying that has ocurred on Wall Street to conceal these credit related problems is massive and still continuing.

Former UBS Banker Pleads Guilty to Aiding Tax Evasion

"Both men were accused of creating bogus trusts and sham offshore entities to hide some $20 billion in offshore assets owned by wealthy American clients. UBS is in talks with the Justice Department and Swiss authorities about turning over the names of up to 20,000 American clients."

Yeah, I have a feeling there are about 20,000 American clients that may not be having a great night of sleep tonight...

Poking my head out of the trenches

Contrary to some rumors that may be out there I'm still alive, just popping my head up to see what's going on.  As many know, ActiveRain had some, uh, pretty serious "technical issues" for a while which I've been helping to battle. Luckily things have stabilized quite a bit in the last week.  I'll try to give you the post mortem on this one, warning tech talk ahead.

Traffic to ActiveRain's site has been steadily increasing month over month, I think we're averaging somewhere north of 80k visitors a day and 15M page views a month.  Our servers were able to handle the human traffic fine, but then we started getting absolutely pounded by various bots and spiders trying to crawl the hundreds of thousands, if not millions, of pages on the site.  For some reason they liked to all choose the exact same time to hit us too.  Some of the RSS feed readers were particularly hideous, as unlike the major search engines that would throttle their requests and only try to say load a page a send, they would trying hitting every RSS feed on the site at the same time.  This was causing traffic spikes that were large enough to start taking down our web servers periodically or at least make them so slow for periods of time they were nearly unusable.

About two months ago we ordered upgraded hardware doubling our number of web servers.  Our managed hosting company built out this environment, but in the process upgraded almost all the software and operating system versions to the latest ones.  As most computer users know, while upgrading software theoretically should help reduce problems it often has the opposite effect.  The new environment went through our testing no problem, and seemed to function fine when we put it up.  However, when we switched over, every couple hours our servers would just blow up (not litererally), almost at random.  We spent many, many hours going line by line through log files, and doing everything we could to diagnose the issue.  Not being able to find any reason for the random self destruction we began rolling software versions back methodically trying to find if one of those caused it.

None of the usual suspects seemed to help, finally we ended up rolling the version of linux we're running on back a minor version and the problem disappeared.  Almost two weeks after the roll out of our new environent we had a fix.  That was about a week ago, and things have greatly stabilized since then.  We've got one more major hardware upgrade coming in the next day or two, as we're going to much more powerful database servers (4 core/4 GB of RAM to 16 core/32 GB ram)  This should further speed up the site and give us a lot of buffer for future growth, and yes we are making sure they are all running the same software versions this time.

So that's what I've been up to and while all of my hair finally fell out :)  No I'm not Jeff Turner's long lost twin...

Does being a good agent require believing in your market?

One of the comments on my last blog post was

"If you don't have confidence in the market how can you sell you buyer clients homes. It sounds like you need to make a decision on a career."

I'm not an agent or anybody that directly makes my living from selling homes, but I thought this was something I wanted to post about and get a good discussion going. 

Is believing in your market going up, a prerequisite to being a good agent? 

I tend to look at one of the main jobs of real estate agents to advise there buyer/seller to the best of their knowledge, not to be a cheerleader for their personal housing market.  This is one of the things that ultimately is working to give the real estate industry a bad name among many consumers.  Kinda like the NAR campaign "It's a great time to buy or sell a house"  ugg...

Most people are going to buy homes regardless of where the market is going, yes some may change their timing or how much their willing to spend because of housing outlooks, but they'll still buy.  If I were an agent, I'd have no problem selling home to buyers in a market I thought was trending down, as long as I was giving them the best representation I could which includes the best available market information, up or down.

I fact thinking about it many of the most successful agents here on ActiveRain the ones that have been through housing market downturns before, and the ones that are likely to make it through this one are the ones that openly talk about both the good and bad in their markets.

What say you? 

Selling and renting your home

I've found myself awake at 4:00 am and had an idea I thought I'd get some feedback from ActiveRainer's about. 

Due to some changes in my personal life, my bearish intermediate outlook on the housing market and the fact I think there's a good chance I'd move in the next 3-4 years (not immediately), putting my house up for sale, with a contract stipulation that I'd sign 2-3 lease agreement with the new owner.  Giving the housing market around here (Bothell, WA) has so far held up pretty well, I'd imagine there may be some real estate investors out there interested in this type of deal. 

I ran through the financial implications taking into account loss of that nice tax deduction, commissions, etc and assuming the lease was at approximately the new mortgage payment on the house and no change in home valuation it's basically a wash for me over a 3 year period.  If the house increases in value, financially I come up on the loosing side, if the home decreases in value I come out ahead.  The main point of it is I go ahead with zero debt, cash in the bank and increased flexibility after the next few years.

Don't get me wrong I'm not one of those people that thinks everybody should run out and sell their house because house prices might decline.  If I was planning on staying in my house for 5+ years I probably wouldn't be thinking about this.