KPIG Radio December 8

Stocks marked losses into the final hour on little real news. The Dubai debt fiasco continues to serve as a reminder of the perils of “creative financing” as the fallout continues. Yesterday saw the release of the Consumer Credit data for October. Credit fell for a record 9th consecutive month, falling 3.5 billion or 1.7%. This also marks the 12th decline in the last 13-months for consumer credit. If ever there was an obvious example of the credit bust script this is it. Consumers continue to shun debt, pay off what they can in the face of sharply falling employment and attempt to ride out the storm. Looks like Mr. Sub-prime himself, AKA ex-Countrywide CEO Anthony Mozillio is going to get his day in court on securities fraud and insider trading charges, following a judge’s refusal to block proceedings brought by the SEC. That said there have been precious few convictions as a result of this fiasco to date, largely thanks to the pathetically low number of cases pursued to date by the various regulators. There has been quite a bit of data regarding home loan modifications this week, the actual figures will be out in a few days. That said the preliminary data isn’t promising. Of the 3.2 million targeted for modification, Treasury admits that most won’t qualify. That said of the 900,000 offers of modification, 680,000 are in temporary status with an average savings over $550 per month. According to testimony from Assistant Treasury Secretary Herbert Allison, it unfortunately is downhill from there. Mortgage servicers report that only about 375,000 have completed the 3-month required period of staying current with the payment. Documentation is a real issue as only about 30% of modifications have complete paperwork. There’s a lot of contention on this as mortgage holders are reporting numerous issues with lost paperwork. Regardless, a failure to convert temporary modifications into permanent status in large numbers, including reasonable reductions in principal as this is a critical step in reducing the redefault rate. Which has run some 50 odd percent of late will result in the issues of inventories and foreclosures being brought back to the fore. As it stands it looks like were staring at credit bust 2.0 next year and if the anecdotes regarding shadow inventory are realized along with a failure of the HAMP program then the effects on residential real estate will not be pretty. This I imagine has a lot to do with continued price declines and forecasts for additional price declines into next year. Because the fundamentals with respect to real estate remain dreadful despite the continued rosy predications of the National Association of Realtors Chief Propaganda Officer, oops, I mean economist Lawrence Yun