Banks Remain Wary of Home Loans; Lending Standards as Strict as They Were 20 Years Ago
March 24th, 2008By definition, Ponzi schemes collapse when the supply of “greater fools” diminishes to the point where existing participants no longer receive payments. (See: Pyramids Crumbling.) Where does that leave this economic system? The banking elite aren’t just going to give up, so what’s next?
I can’t see beyond the popping of the twin derivative and U.S. dollar bubbles. On this one, my Magic 8 Ball is coming up, “Reply Hazy, Try Again,” over and over again. Looking at the chicken entrails splattered against the wall, all I can discern is a bloody mess. The global system that was established after World War II is in another transformation phase now. The collapse of Bear Stearns signaled that the shift was underway. (The last transformation occurred when President Richard Nixon defaulted on paying U.S. obligations in gold.)
Clearly, there are system level plans afoot, but look at any mafia family with big plans. What always happens? Double crosses. Side rackets. Skimming. Back stabbing. I find it hard to believe that the concerted action by the Central Banks will be able to keep the show going in a recognizable manner. (And if my simple doubt about this isn’t strong enough for you, check out, The Financial Destruction of the Average Man.) If that kind of concerted action is required to keep the system going, increasing numbers of participants will look at the antics and think, “How can I make my way to the exit while the rest of the idiots dawdle?”
While systemic financial collapse has looked imminent many times before in recent decades, the black magicians somehow manage to prevail to take the system to new and more insane heights of folly. I’m assuming that some form of emergency will be declared and that aspects of an overt planned economy will be attempted; restrictions on the movement of capital, price controls, rationing, work camps, etc. But I don’t want to get too far ahead of myself.
I’m sticking with my earlier assessment that the financial situation will continue to devolve toward a crisis point in the Fall of 2008. I’m guessing that this period will represent the peak in foreclosures and bankruptcies, with all of the follow on consequences popping up in the spring. I’ll stop there. No sense in terrifying people if I’m wrong.
Via: IHT:
Just when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow — even for those with good credit.
Mortgage insurers, whose backing is required for borrowers who can’t afford the traditional 20 percent down payment on a home, have already flagged nearly a quarter of the nation’s ZIP codes where they refuse to insure some home loans.
That encompasses a wide variety of neighborhoods: McMansions in Scottsdale, Ariz.; luxury Miami condos; 1960 ranch houses in Flint, Mich.; and early 20th century kit homes in Metuchen, N.J.
The entire states of California, Florida, Arizona, Michigan, Ohio and Nevada — which have seen the highest foreclosure rates and the worst price declines — are blackballed on some mortgage insurers’ lists.
Banks that have lost billions because of bad bets during the housing boom are now reverting to strict lending standards not seen in nearly 20 years, according to industry data and interviews with lenders.
For new home buyers and those seeking to refinance, it can mean higher down payments and a higher bar for credit scores, among other requirements. The toughest restrictions are in markets where home prices are falling, though regions where property values are rising are not immune.
“We’re in the midst of an epic, broad, sweeping change in the mortgage industry,” said Chris Sipe, a loan officer with America East Mortgage in Frederick, Md.
The reluctance to extend credit comes despite a flurry of government initiatives, including steady interest rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their mortgages.
Lenders’ growing leeriness threatens to dampen sellers’ already soggy prospects for the spring home-buying season — and that means more pain for the already battered housing sector and the broader economy.
In recent weeks, mortgage insurers have flagged more than 9,600 ZIP codes in at least 34 states where they won’t insure certain types of home loans — those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making down payments of less than 3 percent.
A couple of very true quotes about our economic situation:
“Capitalism will never fail in America…because the government will use socialism to rescue it” – Ralph Nader
“The prevailing economic dogma is pulling Marx out of his grave” – Paul Craig Roberts
@ tm:
And for their repressive police-state, they’re pulling Lenin out of his grave.
A friend reads the Sandspring.com elliot wave forecasting site, and some of what they were predicting has been true. The long range predictions over 8 year periods can be hoakey. They were saying that there would be a low point followed by government intervention around the 21st or 22nd of March. Then the last week of March should be optimistic. Then they say that August should be another low point. Next, there will be a few months of more stability and stock market rise. Then after spring 2009, until 2011, everything should be unhappy again.
Also, regarding work camps – that’s not so far fetched. During the depression, Europe went differently from the U.S., but many fondly remember the WPA. Agricultural societies *need* to have the work ethic as a core value, and we view people doing busy work as superior to those getting a check. Plus, society needs a way to get someone to do elder/child care. In Europe, they force boys to do army or work in senior centers when they’re 18. That’s not quite the american style, but Republicans and democrats both bring up required service.