More on the predatory nature of subprime loans

Don’t believe minorities are specially targeted for subprime loans, especially those with gimmicks such as omitting taxes and insurance, an adjustable rate, especially if the details of that are complicated, etc? Well, they are, as this online minority newsletter notes, specifically referring to Lancaster, and DeSoto.

Barbara Rice, a community organizer at the Massachusetts Affordable Housing Alliance, was quoted at saying: “If you’re white they overlook the fact that your credit score is a little too low or you have one extra late payment.”

Whenever a minority cries racism in this country the White majority tends to be somewhat condescending with the “Oh, that’s not racist” plea. But when a White person proves it, things become interesting. Ms. Rice — a white woman — and a black colleague put their theory to the test in an experiment in Massachusetts last year to test the racial bias of mortgage brokers. They both posed as prospective home buyers in separate meetings with several brokers. Rice presented a worse credit rating and lower income than her black colleague to brokers but received a better deal.

Author Ricardo Hazell provides one simple “smell the coffee” bit of advice to anybody, white or minority, who gets offered a great initial rate on a home loan.

Sub-prime rates are cool if you gotta do what ya gotta do. But don't expect 5.5 percent forever. If the Prime Rate, the rate at which the Federal Reserve lends money to banks to lend to common folks, is at (a higher rate) percent and your rate is less than that do you think that's going to last? Do you honestly believe the bank would sign themselves into a deal where they lose money? Especially not for a first time home buyer.

Here’s how those zero-down mortgages work, if you’re curious

MSN Money Central offers a brief description.

Here's how the 100 percent financing has worked: Lenders sell borrowers two loans — one, a mortgage for the bulk of the house cost, and another to cover the down payment. The big loan is a first lien on the house, the second takes a subordinate position in case of default, so it goes for a higher interest rate. The loan package is split into two because most lenders require borrowers to buy private mortgage insurance (PMI) — to cover the payment in case you cannot -- on mortgage loans greater than 80 percent of the value of the house they're buying.

But, lenders have actually seen this backfire on them!

Now, not only are lenders (slowly) concluding it was risky to have borrowers overloaded with debt, they are also seeing, in the recent tide of foreclosures, evidence that when homeowners have no own money tied up in a house, it's emotionally and financially easy for them to walk away.

No duh. Until the “balloon” note comes due, you’re “selling” people an apartment with its own front yard. I heard stories about at least one person in Lancaster who deliberately treated his zero-down “purchases” that way, walking away just before the balloon came due.

Ending zero-downs will also end other practices:

The return to traditional loan requirements includes ending the practice of removing taxes and insurance from the payment for which a borrower qualifies, says McHale at Freddie Mac. In recent years, some lenders qualified borrowers based just on their ability to cover the monthly mortgage payment. Now, be prepared to demonstrate that you can make not just the monthly mortgage but the entire ball of wax, including taxes and insurance.

Frankly, I find loans that didn’t include taxes and insurance, or even discuss them, to be predatory on financially illiterate people.

Will the subprime collapse depress housing prices, especially in subprime-glutted suburbs?

It certainly could.

Until early 2006, the overheated lending market was pumping out money. Brokers competed to sell mortgages, and, in many cities, incentives to sell stoked home prices into double-digit yearly appreciation. Loans covering 100 percent of a home’s purchase price were not uncommon, with no down payment required. Borrowers, even with badly damaged credit, were breezing into lenders’ offices and emerging with loans that sometimes even locked them into paying more than they earned.

Now, “it’s back to the old-fashioned rules,” (Christopher) Cagan says. With less money available, and with fewer buyers and a glut of houses for sale, lenders are requiring detailed application forms and documents detailing finances and income.

Note a few words and phrases: “Overheated lending market” (that obviously needs to cool down); “double-digit yearly appreciation” (that isn’t sustainable now that the rug’s been pulled out); “glut of homes for sale” (which will remain unsold as part of a glut until prices are cut).

Boy, if I were a city manager (Ricky Childers in Lancaster), I wouldn’t be making noise about cutting people’s property taxes right now. The fact that you are reinforces the idea that the Lancaster City Council made a bad choice in naming you the new city manager.

Nationally, suburbs battle subprime foreclosure blight

City governments mowing lawns and installing alarms systems on vacant houses? They’re that worried about letting anything close to “blight” become visible.

This issue’s going to be around a while.

China to pass US on CO2 emission in 2007

But still 15 percent below world per-capita average

Independent data analysis says China will pass the U.S. in total carbon dioxide output this year.

At first glace, that might seem to reinforce the belief of many conservatives that China needs to commit to a full-blown Kyoto itself before we do. (That’s ignoring that for most conservatives, that’s just rhetoric.)

But, China’s per-capita carbon dioxide output of 3.2 metric tons is still 15 percent below the world average of 3.7 metric tons. And it’s still just 15 percent of the U.S. per-capita output of 20 metric tons.

That said, I believe China does need to take some steps toward building cleaner new electric plants.

China between now and 2015 will build power generating capacity equal to the entire existing capacity in the whole of the European Union, the (International Energy Agency) estimates.

Those plants are going to be around for decades. They need to be clean-burning. On the other hand, because so much of China’s electrical power is used to fire manufacturing plants of U.S. companies that have moved their work over to China, the Chinese should get these same companies to help pay the bill for cleaner electric plants.

Surely, a few dinero out of the millions of dollars of excess CEO pay could be better used in this cause.

Note: China’s “neighbors” in CO2 production are Turkey and Argentina. No. 2 after the U.S. is … Saudi Arabia, with the electricity for all its desert air conditioning, according to information from the United Nations Environment Program.

Is Gov. Rick Perry lying about the Texas Youth Commission sex abuse scandal?

Let’s put it this way: That’s an open possibility right now.

One of Perry’s aides, Alphonso Royal, knew full details of TYC problems before the November elections.

Interviews and documents confirm that one of Perry's aides, Alfonso Royal, was forwarded graphic investigative reports about sexual abuse at the West Texas State School from Texas Ranger Sgt. Brian Burzynski on Oct. 30 or 31, 2006. The documents also indicate that Royal knew in October, just days before Perry was re-elected, about a West Texas district attorney's lack of action in the case.

For months, Perry, personally and through other staff, has denied having any detailed knowledge of the scandal before it broke recently.

Of course, Royal wasn’t supposed to have a copy of the report on the stalled investigation of the problems in the first place.

From here, the $64 question right now would be: Was Royal on a private fishing expedition, or what this official or quasi-official damage control? He did, after all, call Randy Reynolds, the Ward County district attorney currently on the hot seat for the lackadaisical investigation of alleged problems at the West Texas State School in Pyote.

Update, March 24: Now Perry wants the Austin American-Statesman to retract the story linked above. Just a touch of hubris, eh, Gov. Helmethair?

If you’re in Lancaster, or elsewhere in the Dallas Metroplex, drive slow in Red Oak

Tripling the number of traffic tickets you’ve written on a year-to-year basis is a pretty good sign you have a quota in place.

Lancaster ISD is missing $17 MILLION?

That’s the word I’ve heard “on the street” from one person.

No wonder Supt. Larry Lewis hasn’t gotten the district’s state-mandated audit to the Texas Education Agency yet.

When word of this gets out, say goodbye to even Proposition 1 on the May 12 bond, let alone the rest.

When you’re cooking with wine, please advise your guests in advance

You might have a good Church of Christer who doesn’t want to taste that.

Or, you might have one of us who believes he or she has had enough wine already to last us a lifetime, and would like the rest of that lifetime to last longer.

When I taste a certain tangy taste — whether in an entrée sauce or a dessert — a certain tangy taste that I know is from neither lemon juice nor lime juice, I do know what it is from.

I don’t need that, especially not if I’m not prepared to be on the lookout.

For those of you on my side of the street, and new to this side of the street, it is in no way impolite not to eat one bite of this food. If you’re not comfortable saying why, lie. Say the food makes you ill (which it will if you have any more of it, if you’re early in the journey), or whatever you need to say.

If you do know in advance, load up on more alcohol-free food, so that hunger doesn’t get you to lower your guard.

Texas justice, gone awry: Paris student gets 7 years for shoving hall monitor

Apparently blacknessis part of the crime there

How else would you explainthis?

There was the 19-year-old white man, convicted last July of criminally negligent homicide for killing a 54-year-old black woman and her 3-year-old grandson with his truck, who was sentenced in Paris to probation and required to send an annual Christmas card to the victims' family.

There are the Paris public schools, which are under investigation by the U.S. Education Department after repeated complaints that administrators discipline black students more frequently, and more harshly, than white students.

And then there is the case that most troubles Cherry and leaders of the Texas NAACP, involving a 14-year-old black freshman, Shaquanda Cotton, who shoved a hall monitor at Paris High School in a dispute over entering the building before the school day had officially begun.

The youth had no prior arrest record, and the hall monitor--a 58-year-old teacher’s aide — was not seriously injured. But Shaquanda was tried in March 2006 in the town's juvenile court, convicted of "assault on a public servant" and sentenced by Lamar County Judge Chuck Superville to prison for up to 7 years, until she turns 21.

Just three months earlier, Superville sentenced a 14-year-old white girl, convicted of arson for burning down her family's house, to probation.

Now, living two years in Honey Grove, I was fairly familiar with Paris. Not the most enlightened place in the world, but, even with its lynching history, probably nowhere near the worst place of about its size in East Texas today.

That said:

First of all it sounds like some people in Lamar County need to vote a judge out of office.

Second — East Texas cities wonder why they can’t more retirees and such to move there? Hello?

Subprime loans: why they should be a serious economic concern

Pension funds could be up shit creek, that’s why

These subprime loans became financial “instruments,” then were rated by Moody’s and other folks trading on mutual back-scratching, is why. It’s just like at the start of this decade, when folks like people at Merrill Lynch were touting certain stocks in exchange for “considerations” from the relevant companies.

As Kevin Drum says:

Fortune notes that a big factor in the recent success of the subprime lending market has been the ability to repackage subprime loans into clever little bundles of asset-backed securities that are then traded on the open market. But there’s more. An even bigger factor is the fact that these debt instruments (called collateralized debt obligations, or CDOs) have generally received investment grade ratings even if the mortgages underlying them were highly risky.

Sniff those class-action lawsuits getting even bigger?

Wait. Here’s more from the actual Fortune story:

To appreciate the role that the rating agencies play in today’s housing market, you have to understand a piece of Wall Street alchemy: the process by which mortgages are combined, carved up, recombined and carved up again in almost endless permutations to create new forms of debt (which usually go by three-letter abbreviations).

A bank or brokerage bundles up hundreds of mortgages and sells investors debt that is backed by mortgage payments and secured with homes. These asset-backed securities — ABS’s, in Street parlance - are sold in slices, each of which carries its own theoretical level of risk, ranging from the supposedly invulnerable (AAA) all the way down to the bottom rung of investment grade and even past that, to a highly speculative unrated slice.

It's possible to create a AAA-rated asset out of somewhat shaky collateral, because the first dollar of income goes to the securities with the highest rating, while the first dollar of loss is assigned to those with the lowest. The bottom layers provide a cushion that supposedly protects the higher-rated securities.

Lately much of the bottom rung of investment-grade ABS’s has been snapped up by another Street creation called a collateralized debt obligation (CDO), which, like an ABS, is sold in slices. A large chunk of a CDO that consists of barely investment-grade securities can still secure a coveted AAA rating — again, because any losses have to eat through the bottom layers.

In other words, subprime loans are a big Ponzi scheme, to put it less politely. No wonder we get zero-down balloon-note mortgages. And it’s no wonder cookie-cutter homebuilders build crap, if they’re building for a Ponzi scheme.

These products exploded in popularity in recent years because investors — including pension funds and insurance companies, which must mostly buy investment-grade-rated debt — had a voracious appetite for them. That in turn encouraged a historic increase in subprime lending.

So, if these subprime loans ever WERE to be rated at below investment grade, a bunch of pension funds could be up shit creek, along with insurers, mutual funds, etc.

How potent has this nectar of financial temptation been?

The amount of subprime mortgages issued shot up from $35 billion in 1994 to $625 billion in 2005, says Josh Rosner, a managing director at research firm Graham Fisher. Brokerage firms, which packaged, sold and traded these creative instruments, made big
profits. And so did the credit-rating agencies.

At Moody’s (the only one publicly traded), net income went from $159 million in 2000 to $705 million in 2006, in large part because of increases in fees from “structured finance,” the umbrella under which this mortgage alchemy falls.

WOW.

NOTE THAT: A 2,000 percent increase in subprime loans in a decade. Moody’s has an almost five-fold earnings increase in just six years. Anybody with a brain knows there HAS TO BE envelope-pushing (to put it mildly) wheeling-dealing, swap-outs, quid pro quos with stuff like that. And, the small mutual fund investor, etc., will probably wind up holding a large share of the bag.

Sierra Club, Kansas City Power & Light emulate TXU, Environmental Defense

Or even go one better

KCP&L agreed to not only build just one new coal-fired power plant but also to pursue carbon offsets to make up for that plants carbon dioxide emissions.

Under the agreement announced today, KCP&L agrees to pursue offsets for all of the global warming emissions associated with its new plant through significant investments in energy efficiency and renewable energy, and cut pollution from its existing plants in order to improve air quality in the Greater Kansas City metro area.

WOW.

More and more corporate “somebodies” are getting serious about global warming.

Navy still telling whales to go to hell

The Navy says it will invoke state secrets privilege in an environmental lawsuit about how its long-range sonar is damaging whales’ communication, hearing, and perhaps even lives.

If upheld, this would remove certain data that the Natural Resources Defense Council wants from ever being presented in court and would, in essence, gut the lawsuit.

Outside military experts at places like Jane’s Defence Review can probably figure out enough about the long-distance sonar that it’s not really a secret. This is just obstructionism.

Pentagon still telling whales to go to hell

The Navy says it will invoke state secrets privilege in an environmental lawsuit about how its long-range sonar is damaging whales’ communication, hearing, and perhaps even lives.

If upheld, this would remove certain data that the Natural Resources Defense Council wants from ever being presented in court and would, in essence, gut the lawsuit.

Outside military experts at places like Jane’s Defence Review can probably figure out enough about the long-distance sonar that it’s not really a secret. This is just obstructionism.

“Aligning reports” on global warming isn’t political-based science obstructionism?

Not if you’re Philip Cooley, former chief of staff at the Council on Environmental Quality, and before that director of climate change issues for the American Petroleum Institute.

In a House of Representatives climate change hearing:

[Rep. Henry] Waxman quoted an internal API document that identified climate change as the group's highest priority. He said a key API tactic was to spread doubt about climate change science, exaggerating scientific uncertainty and downplaying the role of humans in climate change.

“What bothers me is that you seem to take the exact same approach in the White House,” Waxman told Cooney.

Cooney, soft-spoken but increasingly red-faced as the hours went by, repeatedly stressed that his job was to align reports with administration policy, as reflected by a 2001 National Academy of Sciences report that indicated some doubt about climate change models.

He denied his aim was to sow doubt or that he had any loyalty to the oil industry, even as lawmakers pointed to some 181 changes he made to one document.

Nope, that’s not obstructing science, that’s just “aligning.”

Before you write the Shriners a check:

Read this story.

If only two percent of Shrine Hospitals’ funding comes from general donations to local Shrine temples, and the rest from an endowment, they really don’t need your money that badly, do they?

If your donation doesn’t get sent directly to a Shrine Hospital but instead gets commingled into general funds for the local Shrine temple, including for bingo, liquor and trips, the Shriners you give your money to probably can’t be trusted to manage it that well, can they?

Of the $32 million the Shriners raised in 2005 through fund-raisers like circuses and raffles, more than 57 percent went to Shriners’ activities and temple expenses. Mr. Phillips, the director of temple accounting, said any financial control problems were small, given the size and complexity of the organization.

Shrine Hospitals do a lot of good. Local Shriners, not so much. At least not if they’re like this.

And, as the story points out, since the hospitals, as a group, are actually a separate legal entity from Shrine temples, why would you give money to local Shriners passing a hat at all?

My man Vijay gets two milestones

He wins the Arnold Palmer Bay Hill Invitational and with 31 wins, ties the record for PGA victories by a foreign-born player. That one will be broken soon enough.

Peak Oil: What we need and what we would need to replace it

The world currently uses about one cubic mile of oil per year. Here's what that equates to in other energy sources:

Assumptions: The Three Gorges Dam is rated at its full design capacity of 18 gigawatts. A nuclear power plant is postulated to be the equivalent of a 1.1-GW unit at the Diablo Canyon plant in California. A coal plant is one rated at 500 megawatts. A wind turbine is one with a 100‑meter blade span, and rated at 1.65 MW. A solar panel is a 2.1‑­kilowatt system made for home roofs. In comparing ­categories, bear in mind that the average amount of time that power is produced varies among them, so that total energy obtained is not a simple function of power rating. (From Spectrum, the magazine of IEEE, billed as the world's largest professional technology association.)

For much more on this issue, read this post at The Oil Drum.

Talking more on Peak Oil: Texas stats show how real it is

A couple of weeks ago, I got some fairly recent stats on Texas oil production from the Texas Railroad Commission, the state’s oil and gas regulatory body.

Here’s the basics:

DECEMBER CRUDE OIL PRODUCTION
Texas preliminary December 2006 crude oil production averaged 864,217 barrels daily, down from the 887,856 barrels daily average of December 2005.

The preliminary Texas crude oil production figure for December 2006 is 26,790,739 barrels, a decrease from 27,549,132 barrels reported during December 2005.

JANUARY OIL AND GAS COMPLETIONS
In January 2007, operators reported 639 oil, 753 gas, 53 injection and six other completions compared to 286 oil, 554 gas, 43 injection and three other completions during January 2006.

Total well completions for 2007 year to date are 1,451 up from 886 recorded during the same period in 2006.

So, even though well completions are way up, and U.S. technology for the oilfield continues to advance all the time, Texas production still dropped 3 percent in 2006.