Real Estate Blog

In the past week, I took out my sea kayak (SS. Miller Samuel) and boat (dubbed “Mom Said”) for the first time this season and have started wondering if it has influenced my perception of the credit crunch. Are we already underwater? Zillow and Shiller thinks so.

Last week, the WSJ ran a fun story on page 1 by Michael Corkery called For Mortgages Underwater, Help Swims In.

While lawmakers in Washington struggle to solve the nation’s foreclosure crisis, officials here are using a small fish to clean up some of the mess.

The Gambusia affinis is commonly known as the “mosquito fish” because of its healthy appetite for the larvae of the irritating and disease-spreading insects. Lately, the fish is being pressed into service in California, Arizona, Florida and other areas struggling with a soaring number of foreclosures.

The mosquito fish is well suited for a prolonged housing slump. Hardy creatures with big appetites, they can survive in oxygen-depleted swimming pools for many months, eating up to 500 larvae a day and giving birth to 60 fry a month. That can save environmental crews from having to repeatedly spray pesticides in the pools while the houses grind through the foreclosure process.

Of course, Fannie Mae wants to keep those houses occupied so fish don’t factor into the credit crunch. In James Hagerty’s article Fannie to Aid Underwater Loans:

Advertise Here

Fannie Mae is preparing to introduce by midyear a program of refinancing mortgages for people who owe more than the current value of their homes, a situation known as being “underwater.”

The plan is the latest twist in efforts to contain the surge in foreclosures on homes in much of the U.S. It differs from a bill approved by the House on Thursday that would authorize the Federal Housing Administration to insure loans for distressed borrowers only after the lender has written down the principal — something many lenders are reluctant to do. Fannie’s refinance plan would result in new loans of equivalent size, leaving the borrower underwater but giving him or her a lower monthly payment or at least a fixed rate.

Of course, there can’t be a discussion about liquidity without the mention of beer and wine.

Judy Weil, editor at Seeking Alpha, posts a funny: Maybe Beer Will Help Stimulate House Sales.

A group of real estate agents is hosting a free condominium and beer-tasting tour.

I can only imagine the liabilities the Oregon agents were subject to without thinking. Of course, wine generates the same result. It also makes me wonder about Baltimore.

To help you steer through this complicated morass, the following video will show you others that lost their cool.

See the original post:
[Kayak Liquidity] Mortgages Underwater, Or At Least Those With A Pool

It’s About Soccer, Not Football

Chalking this up to weird timing, but Treasury Secretary Paulson announced plans a few weeks ago to fix the financial markets. It would take a long time to legislate and would not likely be completed before President Bush finishes up his term. What the housing market really needed back then, was leadership on solutions covering the immediate problems such as the lack of credit availability or liquidity and a US economy teetering towards a recession.

In James Surowiecki’s excellent Parsing Paulson piece in the New Yorker, he notes:

As the press has noted, the plan would consolidate our myriad and overlapping regulators into fewer, bigger ones. But the most interesting thing about it is something subtler: a push to move from our current system of regulation—often known as “rules-based”—toward a “principles-based” approach. In a rules-based system, lawmakers and regulators try to prescribe in great detail exactly what companies must and must not do to meet their obligations to shareholders and clients. In principles-based systems, which are more common in the U.K. and elsewhere in Europe, regulators worry less about dotted “i”s and crossed “t”s, and instead evaluate companies’ behavior according to broad principles; the U.K.’s Financial Services Authority has eleven such principles, which are often deliberately vague (“A firm must observe proper standards of market conduct”). This approach gives companies more leeway in dealing with investors and customers—not every company needs to follow the same rules on, say, financial reporting—but it also gives regulators more leeway in judging whether a company is really acting in the best interests of shareholders and consumers.

Football (Rules-based)
In a rules-based environment like Wall Street has now, there a lot of rules that the financial institutions must follow and the regulators enforce the rules. Football, like most American sports, is heavily rule-bound. There’s an elaborate rulebook that sharply limits what players can and can’t do (down to where they have to stand on the field), and its dictates are followed with great care.

Soccer (Principles-based)
The regulators have more authority to interpret and pass judgement on the activities of Wall Street. Soccer is a more principles-based game. There are fewer rules, and the referee is given far more authority than officials in most American sports to interpret them and to shape game play and outcomes. For instance, a soccer referee keeps the game time, and at game’s end has the discretion to add as many or as few minutes of extra time as he deems necessary. There’s also less obsession with precision—players making a free kick or throw-in don’t have to pinpoint exactly where it should be taken from. As long as it’s in the general vicinity of the right spot, it’s O.K.

Not surprisingly, Wall Street favors the principles-based approach rather than rules based (it’s likely to be less complex and less onerous to comply with). Paulson is an ex-Wall Streeter.

Aside

In Newsweek, one of Henry Paulson’s top Treasury Department aides spoke on how United States and world policymakers are responding to the fallout of the global credit crunch.

The short answer is that we are in the midst of a phenomenon painfully familiar to Americans. From the gold rush to the Internet bubble, cycles of innovation, excess, adaptation and recovery to a point of even greater prosperity have defined America’s economic progress. In the present situation, we are seeing the rough edges of the same recent financial innovation that has brought enormous benefits to many investors, businesses and consumers. But these net benefits are of little consolation to the Americans whose lives are being seriously disrupted by the current financial-market turmoil. In response, policymakers in the United States and around the world are taking aggressive and targeted actions to stabilize financial markets, reduce the impact of markets on the U.S. economy and protect against the same mistakes’ being repeated.

blah, blah, blah

But now, focus is shifting to correcting the problems on Wall Street with the adaptation of successful new financial products. Thats where the new solutions to the credit crisis will get interesting.

As the immediate remedies take effect, we have also begun to focus on the weaknesses in business practices of financial institutions that this experience has revealed, and on fragmented U.S. and European regulatory structures that had difficulties guarding against or responding to modern challenges. U.S. and international policymakers are acting in a targeted but comprehensive way to address the causes of current market instability with steps including strengthening the oversight of risk management and reporting practices of global financial institutions; enhancing disclosure of and the process for setting values for complex products; changing and clarifying the role and use of credit ratings; strengthening the process by which national authorities monitor and respond to risk, and reforming the mortgage-origination process. In each of these broad categories, the specific proposals are concrete, widely accepted and, in a number of cases, already being implemented by national or international authorities as well as by the private sector.

Charting the source: Where news happens… or, more accurately, where news is reported from [Reuters]

Read the original:
Paulson Proposes Principles-based Instead Of Rules-based Approach