'Accounting Games' Mask True Financial Pain, Says Housing Seer Rosner

Yo gator, you missed the point underlying Duane's observation regarding price / income ratios. 80% of home sales are bought with mortgages, according to ushousingmeltdown.org. I think that number's probably low, but let's use it for now. ALL mortgage lending is continuing to contract, with credit score requirements rising, ltv's being reduced and general underwriting guidelines for things like dti (debt / income) being tightened as well. People who would have qualified 4 months ago do not now, with Fannie Mae's new, more stringent guidelines. Housing inventories are at 11 months, twice what they should be, and that's with no builder in the past 12 months laying a brick that's not paid for in advance. Foreclosures will continue to rise for 6 - 12 months despite Congress' clamoring which will continue to exert downward price pressure. 3 - 5% annual property appreciation has been the norm for 75 years in the U.S. The pullback from the 30 - 40% annual climb over the past 5 years will continue to be a large, unpleasant hangover after the party. I am a mortgage broker and am on the front lines of the seismic changes going on in the industry. Prices will still come down in nearly all markets for 12 - 18 months, with the 4 worst ones (FL, AZ, CA, NV) taking longer still.

I love when when analysts try to play "accountant". The AMBAC example above is ridiculous. AMBAC provides bond insurance to cover losses on certain bond classes. In the case of Citi... it was insurance on portfolio of CDO bonds. AMBAC paid Citi $850 million to terminate the insurance policy on the CDOs. AMBAC had a loss reserve of approximately $1 billion for losses it expected to cover on this portfolio (meaning they previously took $1 billion of losses through the P&L in prior periods). They (AMBAC) are no longer "on the hook" for these losses upon termination of the contract by Citi. So I ask you, if AMBAC has fully realized the loss by converting it to $850 million in cash... is it "inappropriate" to reverse its $1 billion reserve and recover the $150 million of previously recorded losses through the P&L? Seems reasonable to me. Now Citi should be recording significant write-downs on the CDO portfolio, since they are no longer insured. From Citi's perspective, the $850 million "gain" realted to the cash payment would undoubtedly have been significantly if not fully offset by the CDO write-downs they took when they revalued the CDO portfolio. Sorry to seem sore on this topic... but I am tired of people screaming "foul accounting" without even understanding what they are talking about nor respecting the fact that organizations accounting departments go to great lengths to get the accounting right. Further, public company quarterly results are reviewed by their external auditors... believe me, they take this job very seriously in this environment.

I love when when analysts try to play "accountant". The AMBAC example above is ridiculous. AMBAC provides bond insurance to cover losses on certain bond classes. In the case of Citi, it was insurance on portfolio of CDO bonds. AMBAC paid Citi $850 million to terminate the insurance policy on the CDOs. AMBAC had a loss reserve of approximately $1 billion for losses it expected to cover on this portfolio (meaning they previously took $1 billion of losses through the P&L in prior periods). They (AMBAC) are no longer on the hook for these losses upon termination of the contract by Citi. So I ask you, if AMBAC has fully realized the loss by converting it to $850 million in cash, is it inappropriate to reverse its $1 billion reserve and recover the $150 million of previously recorded losses through the P&L? Seems reasonable to me. Now Citi should be recording significant write-downs on the CDO portfolio, since they are no longer insured. From Citi's perspective, the $850 million "gain" realted to the cash payment would undoubtedly have been significantly if not fully offset by the CDO write-downs they took when they revalued the CDO portfolio.

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Rosner has been on board these issues for years, even when the housing market was roaring he said that if and when things slow down there will be hell to pay. He truly is a bona fide "seer" on this issues.

Let's get real here. Americans used to consume 70 PERCENT OF THE WORLD's RESOURCES.....how did they do that???? They had decent jobs. What's happened since that time? They have lost their jobs to DOWNSIZING, INTERNATIONALIZATION and OUTSOURCING..... What happens to a world where the people that could afford to pay for houses don't have jobs anymore????? The ka ka hits the fan. Without income AMERICANS will become rentors in their own country....and foreigners are the only ones buying realestate right now. Where did all of that sub prime money come from???? Afghanistan heroin, Colombian cocaine, IRAQI oil disguised as UAE oil MONEY being MONEY LAUNDERED THROUGH US BANKS from foreign investors.... what would I do???? I would declare the economy a NATIONAL SECURITY ISSUE and regulate outsourcing and REQUIRE that all customer service jobs come back in_country and be given to people who have long commutes to save gas. I would make it _illegal_ to outsource governmental jobs federal and state... I would arrest the bush administration and their cronys and recover monies from their companies, and put that money back into the General Fund...........why should we the citizens pay for an invasion to enrich the bush cheney rumsfeld lieberman and others getting payoffs from big oil and Israel???? That would send a message to the world and make American made products a lot more popular.... What was Exxon - Mobils profit last quarter???? Why should we the citizens pay for their development costs aka invading IRAQ, or why should we send soldiers to the DRUG STATE of AFGHANISTAN, to keep Halliburton and others in the chips and protect Cheney's drug runners from becoming Pakistani ????? Get a clue sheeple. get a fricking clue.

These are probably all relevant comments but hey guys and girls jump outside the box and blame the American people for electing your current so called LEADER to a second term who has put you all into this current malaise. Think deeply about it!!

People may just have to start buying houses that they can afford. Which would make the prices for them met the metric of 2.5 times annual income right now. Granite counter tops and Jacuzzi tubs are not a requirement of life. Contrary to the sales pitch of the real estate industry a house is a place to live (for the retail customer)and not an investment (They are an investment for the developers ) and should be purchased accordingly. Which makes for a more peaceful life. Familyman

The point most people are missing is the idea that started in the mid 90's that the govt wanted everyone to own a home. Until we remove party line agendas from the housing issues - since last time I checked a Democrat was president when he was saying this was going on - we will not see the light at the end of the tunnel. Housing prices were a direct result of the free flow of money available to the consumer. The banks need to step up to the plate and acknowledge that my home price has declined because they gave loans to people who could not afford them thus causing the housing default. But they drew a line in the sand and ignored the thousands of homeowners who called and said please help me...I think this problem we face correlates to the way our society acts in that we swing from one extreme to the other. Banks have frozen their loan programs which causes less money to be in the economy and shrinks their profit margins even more which then gets spun around back into a failing economy. We need to stop blaming everyone else and find the middle.

Read many comments and so many of you are on target with the current state of the economy. It pretty much begins with our nation's lack of education in Finance....Look at our goverment; Great example on how to manage money with a deficit in the trillions! The hedge here is to start Personal Finance education with the young when they get a grasp of what money is. My 5 year old earns money that is saved to buy her webkins. After the cash is spent, she has to earn more money before she can buy another. Don't get we wrong, I still buy her gifts for birthdays and holidays, but if she really wants something, she is going to have to work for it. If we were to implement personal finance classes as early as Middle School - High School ths would help curtail the salvating banks from taking advantage of college students. We should educate our children in advance on the proper way to manage cash flows and credit. Heck, as an adjunct at High Point University in North Carolina, I was stunned at the many working adults who are getting either their B.S. or Masters who had little knowlege of personal finance and managing their financial affairs! Direction to get us healthy; Rid ourselves of tremendious outstanding debt, increase our cash flow, and invest in our future goals and dreams..... Then the US will once again be the world leader!

Defeatism seems the order of the day. I find much of the targeting of debtors a bit of a whitewash of the real issue which was securitization and the financial practices in the professional mortgage market. The best thing to do in practice is to allow incomes to rise without stupid wage "pressure" focus as we have lived with and stimulate home buying. We should be restricting mortgage debt but consumer debt (credit card) on balance overtime. Anything quick and house of cards falls.

That is a very assinine statement - yeah Geoge Bush told you to go max out your home equity line on that new car and boat you wanted...The expert on the video said this started in the mid 90's - last time I checked that was a Democrat in office. Oh and the only group of politicians with a lower approval rating then our president is that Democrat led Congress - the lowest approval rating ever. It will not end until we get away from the blame game. Mark my word - this will turn around and there will be huge profits for those who had patience and did not bounce from one extreme to the other. It is not going to get cheaper to build a house...

The banks and brokers with the tacit approval and support of the Fed, SEC, Treasury etc. are simply playing the quarterly earnings cycle game. They are all just trying to buy time. Do not be surprised if the short selling restrictions get extended if bad news is still on the books.

I absolutely can't stand Bush. But there are plenty of others to blame besides him. Here just a few: Greenspan- for fueling the housing fire by putting rates at historic lows for an extended period of time. Lenders - for putting people into mortgages that should have never been there in the first place. Investment bankers - for selling crappy bonds backed by crappy assets. Institutional buyers - for buying crappy bonds backed by crappy assets clearly without doing the appropriate diligence. Rating agencies - for putting overstated ratings on crappy bonds backed by crappy assets based on "rosey" projections of future house prices. Oh yeah - and borrowers, for being stupid enough to believe your crook mortgage broker, rather than asking yourself "can I really afford this... is it possible my interest rate on my ARM might go up"?

So 2.5 x income is not a worthy fundamental anymore? This time it is dif? HA HA HA That is a good one. I live in a one bedroom apt in a 24 story tower here in San Fran and the units are for sale at over 30 times annual rent. Plus there is $400/ mo HOA plus figure in prop taxes. Only a moron would buy or someone so wealthy that they do not care. Housing will probably drop below 2.5 as the rubber band often snaps back hard and past the norm. Retail is going to be the next big hit and com RE will fall too. Look at Japan from 1988 till now and you will get the picture.

Wait till inflation kicks in and home interest rates escalate. In 1988 I was paying almost 11 percent. Those days can and will come back.

Americas being destroyed by design. Wait till we invade Iran. We will be in a full on depression. The federal reserve is killing the dollar on purpose. Listen to Dr. Ron Paul. He's one of the few politicians who cares more about America than his pockets!

I am 96 years old. Old enough to be able to tell you young know it all whippersnappers that believe things will get better that you are all fools. This country is just entering it's next GREAT DEPRESSION. I remember after the stock market crash in 1929, that there was also a rally just like you are having right now. This rally was only fed by those that had some cash to buy stocks at their reduced prices. The so called "bottom feeders". But the stupidity is that they are only a small percentage of the population, while everyone else were losing their cash and starting to lose their jobs. And so as the bottom feeders took up their new "long hold" positions, they stopped buying into the stack market as well, and from there is where it really tanked. Not recovering to the same point until 1954. 21 years later!!! There was no credit available to anyone but the very well off, who also were a small minority. People could not make their house payments and were foreclosed left and right. And back then, when you were foreclosed, you had to move within 10 days!!! Then the droughts started just like now and people just abandoned their homes to go to California where there were jobs working in the fields. You young people haven't seen nothing yet. Soon you will all be losing your jobs. If you do not want to lose your homes right away also You need to get all your money out of wherever it is. The banks, the stock market, your retirement accounts, etc. while you still can. I had one brother who was murdered and another that commited suicide during those times. My sister had to sell her body just to survive. This all starting up again. Do not believe any of the "happy day liars" telling you it will all be okay.

This guy is spot on. The average analyst makes this guy look like Einstein.

thanks for the picture but I think there is a lot remediation to do