August 7, 2007 (LPAC)--One of the more conservative statistics-gathering firms just released estimates indicating that US home foreclosures rose 20-30% in one single month, from June to July. It should be obvious that this has social and related implications which are completely unacceptable, and Lyndon LaRouche repeatedly explained the government measures which are required both to keep homeowners in their present homes, and to preserve the existence and functioning of our banks. (Only hedge funds and the like need be sacrificed.) [Watch LaRouche's July 25, 2007 Webcast]
With that said, let's look at the role of skyrocketing foreclosures in the current speculative bubble, a bubble which can only expand exponentially or collapse, with nothing in between. At one "bookend" of the cycle, as LaRouche has termed it, the banks issue massive credits for new speculations by the hedge funds and equity funds, for which they are virtually slaves. At the other "bookend," what has allowed them to issue it, over recent years, has been the yen carry-trade, now collapsing, and the ability to repackage mortgages into "funny money" such as mortgage-backed securities and then, in turn collateralized debt obligations. But now, not only has such repackaging become impossible, but existing such paper has become worthless, further wiping out banks ability to lend to the funds.
Foreclosures.com's July report is that pre-foreclosure filings (i.e., delinquencies 30-90 days) are up 27% nationally from June to July; and homes sold in foreclosure are up 21%. Over January-July, about 0.9% of households (567,000) were in preforeclosure, compared to 0.5% in the same period of 2006. 0.37% were sold in foreclosure (294,500) compared to 0.29% in the same period of 2006. "The numbers are dismal, but we had better get used to it because the blood-letting will continue for another 12 to 18 months," said Alexis McGee, president of Foreclosures.com. "It's a tough reality, but many more over-extended homeowners not even in default yet, won't be able to refinance because of tightened credit markets, and will eventually lose their homes to foreclosure." Colorado and Michigan tie for first with 0.94% of homes foreclosed. Nevada 0.93%; Georgia 0.85%; Indiana 0.78%.
On the repackaged mortgages which until recently allowed banks to make speculative loans, the Wall Street Journal quoted a Matt Natcharian of Babson Capital Management on July 6, that the market for asset-backed CDOs "Has come to a grinding halt. It probably won't come back for a long time." The Washington Post quotes JPM Securities analyst Steven DeLaney on bundled mortgage debt: "The market today has just basically shut down."
Aegis Mortgage Corp., a mortgage lender that's part-owned by private-equity firm Cerberus, suspended all loan originations on Monday. Aegis also is unable to fund home loans that are already in its pipeline, spokeswoman Pat Wente said. Aegis was the 13th largest subprime mortgage originator in 2006, according to industry publication Inside Mortgage Finance.
National City Corporation said on Monday that its National City Home Equity unit has suspended approvals of addition loans or lines of credit in response to market conditions. National City was the 13th largest originator of all types of mortgages during the first half of 2007, Inside Mortgage Finance data show. National City Home Equity is one part of National City's mortgage business. The unit offered home equity loans and lines of credit in 48 states.
Aegis and National City are joining about 110 mortgage-related companies which have failed this year.
