I cannot believe how dare these government officials to use the taxpayers’ money (my annual $20000 to $50000 tax contribution included) to “save” these subprime homeowners from foreclosure. Why don’t they give me a free two loan points on the loan or the cash back to me for buying a home? America is about fairness, but it has all but disappeared in these callings for help.

If you cannot afford to buy a home, then you should not buy to drive up the prices further. Such bailouts are unethical and unfair. It creates moral hazards where speculation is encouraged and prudence is thrown out of window (well, actually this is probably not the first time nor will be the last time). American society has been getting more speculative and materialistic as a result. Being a diligent saver or conservative often gets you nowhere. These subprime borrowers and lenders who have taken excessive risks are not punished but rather rewarded by big gains before blow-up, and then (plan/hope to be) compensated by taxpayers’ money later. In the name of “saving home”, government officials are trying to please these constituents and sounding politically correct.

In all these blowups, government officials even dare to make the investors legally responsible for the entire mess. These investors who provided all the money to make everything possible, will be the biggest losers among all. Once the homes go into default and foreclosure with negative equity, the bond investors will not only lose interest but also principal. And now Chairman (of House Financial Services Committee) Barney Frank, D-Mass., and Spencer Bachus, R-Ala., want to hold bond investors legally responsible. If such legislation passes, it will dramatically make the mortgage-back bonds to be a lot more expensive, making the homes be even less affordable.

Out of all politician in the USA I like Ron Paul the best. He is the only one who sticks to the original spirit of US constitution and can stop the government getting bigger and bigger in increasing the burden on everyone else in the private sector. I will definitely vote for him when/if he runs for president in 2008.


California Foreclosure Up And Up

Here is some of the latest real estate headline news:

1. Home builders’ confidence falls to 16 years low.

2. Notice of defaults in California up by 23% from last quarter, and up by 148% from last year.

3. New Century goes bankrupt, slimming down from 6000+ employees down to 100+ people, right at Irvine, Orange county, the center of the mortgage fraud so to speak (Impac, Ameriquest, Resmae, Option One are all here).

4. California new home sales down 37% on an annual basis. Slowest total March sale since 1997. You got to remember one thing that if the absolute number of sale is worst than 1997, it is actually much worse than 1997. In these 10 years, California has been growing population at about 1.5% annually. Normalizing the real estate sale by population, the sale would actually be 14% worse.

I have been saying that the bottom of the bubble zone of real estate won’t come until after 2009/2010, which I have arrived by adding 5 years (before negative ARM gets fully amortized) to 2004/2005, plus 1 extra year of time delay for a home to go through the entire foreclosure process. Jim Puplava said in his online radio that he expects the bottom to come at about mid-2008. I personally think that real estate market is still in the denial stage, where sellers are not willing to drop price. That attitude will really take time to change, until the home owner/mortgage holders get burned through monthly negative cashflow for an extended period like 1 to 2 years. If the amount of price drop is more than 2 years worth of the negative cashflow, sellers are more likely to hold out than cutting price.

I didn’t need a chart to convince myself, but above (click to enlarge) is the mortgage resetting “map” going forward. As you can see, the subprime mortgages are not flushed out yet and coming to reset in volume later this year. The next bigger wave is the 5-year period from the loan origination, which will come in 2010 through 2012 for the option ARM. If you use 9 to 12 months for the foreclosure process, the real estate market is likely to have a small break in 2010 before getting hit by mortgage reset again.

I think that the only way to stop the housing deflation is through inflation of everything else. I expect the real inflation (not the one published by government to stay above normal for an extended period.