New Residential Construction Report: May 2007

Today’s New Residential Construction Report continues to indicate significant weakness in the nations housing markets and for residential construction showing large declines on a year-over-year basis to single family permits, starts, and completions nationally and across every region.

Single family housing permits, the reports most leading of indicators, again suggests substantial weakness in future construction activity dropping 27.7% as compared to May 2006.

Keep in mind that these declines are coming on the back of last year’s record declines.

To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values compared to the peak years of 2004 and 2005.

Notice that on each chart the line is essentially combining the year-over-year changes seen in 2005 and 2006 and shows virtually every measure trending down precipitously.

Although year-over-year declines to permits, for example, have not accelerated measurably from September 2006, the fact that they continue to decline roughly 30% should provide a solid indication that they are by no means stabilizing.




Remember that permits, starts, and competitions are not simply independent measures but are, in fact, three logically related and dependent measures.

In the process of a building project, first you get the “permit”, next you “start” building, and finally you “complete” the project.

For this reason, one must adjust expectations prior to reading a newly released Census Department report to account for the true nature of the data published simultaneously each month.

As in past months, I have “smoothed” out the unadjusted data and aligned the three data series (i.e. moved starts back a month and completions back six months) to make more obvious their trend.

The following is the unadjusted permits, permit-starts and permit-completion data charted since 2000 (click for larger version).

The following is the unadjusted permits, permit-starts and permit-completion data smoothed with a 12 month moving average (click for larger version).

The following is the smoothed data aligned to indicate the dependent nature of each series and showing the obvious leading nature of permits (click for larger version).

The following is the aligned data normalized to make the relationship even more obvious (click for larger version).

Here are the statistics outlined in today’s report:

Housing Permits

Nationally

• Single family housing permits down 1.8% from April, down 27.7% as compared to May 2006

Regionally

• For the Northeast, single family housing down 7.6% from April, down 15.0% as compared to May 2006.
• For the West, single family housing permits down 2.6% from April, down 28.8% as compared to May 2006.
• For the Midwest, single family housing permits up 5.4% from April, down 21.8% as compared to May 2006.
• For the South, single family housing permits down 2.6% from April, down 30.5% compared to May 2006.

Housing Starts

Nationally

• Single family housing starts down 3.4% from April, down 26.0% as compared to May 2006.

Regionally

• For the Northeast, single family housing starts up 0.9% from April, down 20.6% as compared to May 2006.
• For the West, single family housing starts down 12.1% from April, down 33.3% as compared to May 2006.
• For the Midwest, single family housing starts up 9.1% from April, down 23.2% as compared to May 2006.
• For the South, single family housing starts down 3.4% from April, down 24.2% as compared to May 2006.

Housing Completions

Nationally

• Single family housing completions up 1.5% from April, down 19.3% as compared to May 2006.

Regionally

• For the Northeast, single family housing completions up 24.7% from April, down 21.7% as compared to May 2006.
• For the West, single family housing completions up 1.0% from April, down 27.8% as compared to May 2006.
• For the Midwest, single family housing completions down 7.2% from April, down 31.9% as compared to May 2006.
• For the South, single family housing completions up 1.6% from April, down 9.5% as compared to May 2006.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

Crashachusetts Existing Home Sales: April 2007

This week, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for April 2007 showing further weakness to the regions residential housing market.

Along with the release, MAR President Doug Azarian continued to maintain an optimistic outlook on the trend.

“The housing market continued to trend in a positive direction for the month of April … While the number of detached single-family homes sold was down, the 1.7 percent decrease year-to-year was the lowest we’ve seen in the month of April for the past three years. … With inventory levels decreasing and interest rates still low, demand should continue to keep prices stable through the end of the spring home buying season,”

Probably the most notable data-point of the report is the continued increase of the average “days on the market” resulting in an increasing monthly supply.

Although the total residential inventory is lower now than in April of 2006, the sales pace is continuing to slow.

It’s important to remember that we are again seeing year-over-year sales declines “on the back” of last years historic sales drop-off indicating truly fundamental weakness.

This is inevitably resulting in climbing inventories that for some towns, such as Concord, are exceeding last years levels while many other towns continue to simply trend upward.

Use the PaperMoney Inventory Tracker to follow your town’s daily inventory as well as visualize the inventory changes that have occurred over the last year.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

April’s Key Statistics:

• Single family sales declined 3.5% from March and declined 1.7% as compared to April 2006
• Single family median price increased 0.3% from March and declined 2.3% as compared to April 2006
• Condo sales declined 0.7% from March and increased 0.7% as compared to April 2006
• Condo Median Price declined 1.6% from February and increased 2.6% as compared to April 2006
• The number of months supply of residential properties stands at 10.0 months.
• The average “days on market” for single family homes stands at 150 days.
• The average “days on market” for condos stands at 143 days.

Existing Home Sales Report: April 2007

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for March showing continued and uniform weakness of the nations housing markets.

Without missing a beat, the new “fill-in” Senior Economist Lawrence Yun continues to suggest that the weakness is indicating stabilization.

“We’ve been anticipating slower home sales because many subprime loan products are no longer available … In addition, increased scrutiny by lenders is stopping risky mortgage origination, which is good for both consumers and the lending community. Fortunately, a wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months will help to stabilize the market going forward.”

Additionally, NAR President Pat Vredevoogd Combs continues to attempt to scare buyers into action with the threat of increased interest rates.

“Long-term financing remains favorable, but interest rates are rising … Although some buyers have a wait-and-see attitude regarding home prices, they should consider that rising interest rates later this year could offset a lower sales price when you get down to the monthly payments.”

Looking at March’s Existing Home Sales report should only result in additional confirmation that the nation’s housing markets are continuing to experience weakness with virtually all regions showing considerable declines to median price and sales as well as significant increases to inventory and monthly supply.

Sales are, in fact, down in EVERY region with the majority of declines in the double digits.

Keep in mind that we are now seeing existing home sales declines on the back of last years fairly dramatic declines further indicating that the housing markets are not bottoming as many had suggested last fall.

Below is a chart consolidating all the year-over-year changes reported by NAR in their April 2007 report.

Particularly notable are the following:

• Majority of median prices are down.
• ALL sales are down.
• ALL Inventory and Months Supply show HIGH double digit increases on a year-over-year basis.

Boo Hoo?

Oh.. Boo Hoo.. That mean Lesley Stahl hurt the wittle twade organization’s wittle feewings…

Or so went the National Association of Realtors (NAR) sad, feeble smokescreen of a response to last Sunday’s 60 Minutes segment.

Well before you get all teary, let me remind you that the National Association of Realtors is not only Americas largest trade organization but also the most wealthy and influential Political Action Committee (PAC).

As such, they are routinely called to Capitol Hill to provide “important” testimony as well as certainly calling upon on our representatives (at least the ones they supported with campaign donations) to apply the best influence that money can buy.

Stated plainly, the NAR is far more powerful than any individual American using their campaign contributions and ongoing lobbying to virtually ensure that their interests are represented well in excess of the average consumers.

What happens if there is conflict between what would be in the best interest of the American consumer and what would be in the best interest of the NAR?

Ill let you decide.

The 60 Minutes segment merely stated the obvious, questioning the sense of the traditional 6% broker commission as well as pointing out that in the age of the Internet, the traditional real estate broker services are going the way of the buggy whip.

There were no new revelations in the segment as these are the very same issues many average consumers have asked themselves in recent years after seeing the obvious disconnect between the standard 6% commission Realtors have established and the actual work performed.

Yes, it’s true that, as NAR states, commissions are always negotiable and in fact average more like 5.1% nationally but one should use caution before jumping to the conclusion that Realtor commissions represent a free and efficient market.

The reality is that NAR has worked to prevent competition from limited service brokers who would otherwise charge minimal flat fees or commissions at or below 4% in exchange for services that generally assist sellers in listing their home with the MLS as well as providing a range of other Internet based marketing efforts.

Keep in mind that this attempt to stifle competition is really an attempt to prevent technology from doing what it does best, that is, bringing new and innovative services to the market that dramatically increase the efficiency of existing processes.

As we know very well, this efficiency is often translated to savings in the cost involved of a particular process which can be passed on to the consumer through free and unfettered competition.

Therein lies the real issue for the NAR.

The Mother of all “disruptive” technologies, namely the Internet, is bearing down on the NAR and instead of embracing the change and innovating, they are fighting it tooth and nail in an effort to maintain the status of the traditional full service broker model.

This is certainly NOT in the best interest of the consumer but is this really in the best interest of the association members?

You brokers out there ought to ask yourselves what services you have found to be most impressive recently.

The schlocky listing sites hosted by many full service agencies or the innovative services such as Zillow.com, ZipRealty.com, and Redfin.com.

Remember, it’s your future that is in flux here.

You can either choose to join the trend that will inevitably yield a host of new services and models for transacting the business of real estate, or fight it and likely be left behind in an ever dwindling cohort of “old timers” attempting to provide defunct services.

The complete 60 Minutes segment as well as Lesley Stahl’s post-segment Q&A can be viewed now on BNN!

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Existing Home Sales Report: March 2007

Not so fast Real Estate-Wall Street Bulls.

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for March showing the LARGEST MONTHLY DROP IN HOME SALES SINCE JANUARY 1989.

Of course, NAR Chief Economist David Lereah continues to attempt to blame winter weather conditions as well as fallout from the subprime meltdown for the current drop in sales.

“For the last couple months we’ve been expecting a weather ‘hit’ on home sales finalized in March, … We also may be seeing some losses as a result of the subprime fallout. … It’s too early to measure a significant impact from tighter lending standards, which should moderately dampen activity, but we’re still looking for existing-home sales to gradually improve during the last half of 2007”

Additionally, NAR President Pat Vredevoogd Combs continues to attempt to goad unknowing home buyers into making their purchase at the top of a dramatically deflating market.

“It’s a good time to buy, in part, because home buyers are not pressured to make quick decisions,” Combs said. “We’re in a window of low interest rates with a plentiful supply homes on the market and flat prices in most areas. First-time buyers now have more power to negotiate with sellers for help on downpayment or closing costs.”

Looking at March’s Existing Home Sales report should only result in additional confirmation that the nation’s housing markets are continuing to experience weakness with virtually all regions showing considerable declines to median price and sales as well as significant increases to inventory and monthly supply.

Keep in mind that we are now seeing existing home sales declines on the back of last years fairly dramatic declines further indicating that the housing markets are not bottoming as many had suggested last fall.

Below is a chart consolidating all the year-over-year changes reported by NAR in their March 2007 report.

Particularly notable are the following:

• Majority of median prices are down.
• Majority of sales are down.
• Inventory and Months Supply show double digit increases on a year-over-year basis.

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Crashachusetts Existing Home Sales: March 2007

Today, the Massachusetts Association of Realtors (MAR) released their 1st quarter 2007 and March 2007 results for existing home sales, median prices and inventory along with a fresh dose of spin from President Doug Azarian and MAR President-Elect, Susan Renfrew.

Before we delve into the numbers, let me point out the truly awful quality of data reported by MAR, particularly on Azarian’s watch.

For a few months now I have noticed some strange “revisions” to the single family sales numbers for past months and after considering all the possible rational reasons for these irregularities, I can only conclude that it is sloppy reporting on the part of MAR.

I should mention, that I don’t necessarily think that there is any foul play in MAR’s reporting, instead it appears that MAR has simply fumbled and, unfortunately for us, has tainted the sales and median price results.

There are several many that exhibit questionable revisions but Ill highlight February and March of 2006 as examples.

It February 2006, MAR’s Existing Home Sales Report (EHS) reported that single family sales were 2254 units with a media sale price of $339,450.

MAR than revised this number in their March 2006 EHS report to show February 2006 single family home sales of 2265 units with a median sale price of $339,000.

Then in the February 2007 EHS, MAR reports that in February 2006 single family home sales were 2380 units with a median sale price of $339,000 while ALSO citing the 2265 unit sales number at the bottom of the very same report (first and second pages versus very last page).

Which is it … 2380 or 2254? Both numbers are used in the same report.

Furthermore, in the March 2006 EHS report, MAR reported that single family home sales were 3440 units with a median sale price of $344,000.

MAR then reaffirmed both their single family sales and median price numbers in their April 2006 EHS report.

Then in the March 2007 EHS, MAR reports that in March 2006 single family sales were 3550 units with a median selling price of $343,500.

That’s a 3.2% upward revision to single family sales yet there seems to be no evidence that the number is accurate.

Keep in mind, I looked back over MAR’s past releases to see any patterns to revisions and there are some but there are many examples where months are simply randomly altered showing totally different numbers in-between months that have numbers consistent to what was past reported.

Also, these revisions have all been made WITHOUT the customary press release providing any explanation for the changes as well as for the procedure used for revisions.

Wouldn’t it be great if “crack” reporter Kimberly Blanton of the Boston Globe could focus some attention on issues like MAR’s unusual numbers revisions rather than reporting puff pieces on the strength of the bottoming housing market?

Well good numbers or bad we are stuck with what we have and with that lets take a look at March 2007’s findings.

With the today’s release of the existing home sales, MAR president Doug Azarian suggests, “The housing market in Massachusetts is gaining momentum and we can continue to feel good about where it is headed. With prices remaining stable and supplies decreasing, we can expect the spring home buying season to be active.”

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

March’s Key Statistics:

• Single family sales increased 43.2% from February and declined 2.8% as compared to March 2006
• Single family median price increased 5.8% from February and declined 0.1% as compared to March 2006
• Condo sales increased 39.6% from February and declined 1.4% as compared to March 2006
• Condo Median Price increased 3.3% from February and declined 3.0% as compared to March 2006
• The number of months supply of residential properties stands at 9.0 months.
• The “days on market” for single family homes stands at 158 days.

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Existing Home Sales Report: February 2007

Yet again, the Bulls on Wall Street and CNBC waxed wildly optimistic with the initial “top-line” numbers of a report before delving into the details thoroughly enough to realize that they had gotten ahead of themselves.

Looking more closely at February’s Existing Home Sales report should only result in additional confirmation that the nation’s housing markets are continuing to experience weakness with the majority of regions showing considerable declines to median price and sales as well as all regions showing significant increases to inventory and monthly supply.

In an attempt to squeeze as much press out of the top-line 3.9% increase to sales nationally from January, David Lereah, Chief Economist of the National Association of Realtors (NAR), expresses some surprise but is still cautiously pointing the finger at the weather for the other weaker numbers:

“Some of the rise in home sales may be from mild weather that brought out shoppers in December, but fundamentals have improved in the housing market and buyers see a window now with historically-low mortgage interest rates and competitive pricing by sellers, … Even so, winter storms last month discouraged shopping, and buyers were chilled with the third coldest February on record. These unusual weather patterns mean home sales that close in March may decline before rebounding later this spring.”

Additionally, NAR President Pat Vredevoogd Combs offers this bit of convoluted logic mixed with consumer taunting:

“Over the last year, we’ve seen declining sales in many high-cost areas but rising activity in lower cost markets, … This change in the geographic composition of sales means we aren’t getting apples-to-apples comparisons in median home prices from a year ago.”

“What’s really happening is probably somewhere in between the different measures, but home prices are soft – a year ago we were still seeing bidding pressures and double-digit price growth, … Overall, home prices should rise slowly this year, and many buyers have an opportunity now that was only a dream during the five-year boom.”

Probably the most notable results from today’s report, beside the numerous median price declines, are the even more notable increases to inventory.

At this point, it seems fairly obvious where things are going in terms of inventory, especially in the more seasonal markets, but it will certainly be interesting to see how things shape up during March and April.

Below is a chart consolidating all the year-over-year changes reported by NAR in their February 2007 report.

Particularly notable are the following:

• Majority of median prices are down.
• Majority of sales are down.
• Inventory and Months Supply show double digit increases on a year-over-year basis.

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Crashachusetts Existing Home Sales: February 2007

So, it appears that last month’s optimistic market “rebound” sentiment was short lived.

As I had noted last month, the Northeast had experienced exceptionally warm weather in January most likely resulting in an increase in the number of days suitable for home sales when compared to an average January.

This inevitably resulted in a bump up in residential real estate activity, noticeably affecting indicators from home sales to residential construction permits.

The weather in February, on the other hand, was far more typical for winter in the Northeast with a few snow storms and lots of bitter cold days pushing single family homes sales 12.2% below January’s results and holding reasonably flat compared to the February 2006 results.

These results become even more interesting when you consider that the February’s slower sales came even as the median home price declined 4.4% from January and 4.1% as compared to February 2006.

Additionally, although February registered a 17% decrease to inventory of residential properties (single family and condos combined… unfortunately MAR seems to no longer report the inventory and supply statistics separately) as compared to February 2006, there has been a 15% increase to the number of months supply since January indicating again that the sales pace is slowing.

In fact, the average number of “days on the market” now stands at 148 days compared to 115 days for February 2006.

It now appears that the Spring market may present a pretty ugly spectacle as I believe that inventory levels may significantly exceed last years results.

It appeared to me, at least anecdotally, that an unusually large number of listings were pulled from the market during the October-November timeframe, far more that I had witnessed in the fall of 2005.

In a matter of days, the number of listings had been more than halved in virtually every town inside 128.

Those listings have yet to resurface and, although this is the typical pattern seen during this time of year, I believe that, in the face of an uncertain housing market, sellers that got stuck with stale listings last year are attempting to time their listings to a greater extent than has been seen in past seasons.

Don’t forget to use the Inventory Tracking Tool If you would like to get a “bead” on inventory.

It’s still fairly basic, but now that I have nearly a years worth of data captured, Ill soon add some more advanced analytical functionality.

Finally, the Federal Reserve Bank of Boston recently released a paper titled “Understanding Foreclosures in Massachusetts” within which the authors discuss at length the sudden increase in foreclose rates seen recently.

Massachusetts has now exceeded New England’s average for foreclosure rates and is quickly closing in on the national average as well.

The paper attributes this increase to both an increase in the use of risky loan products as well as the decline of the housing market.

“Since the 1990s, products featuring changing monthly payments have grown increasingly popular. These can include adjustable-rate mortgages (ARMs), where monthly interest rates and payments size are linked to some index, such as the prime rate; or products with features like “teaser rates” where initial interest rates are low, but are set to increase after fixed time periods. While some ARMs are structured to have only moderate shifts in monthly payments, some have dramatic increases, often occurring a fairly short time after origination.”

“The weakening housing market has likely played a strong role in the recent foreclosure increase. Since 2004, rates of housing price appreciation in Massachusetts and New England have slowed dramatically, and by some estimates, property values have declined.”

The following is one interesting chart (click for larger version) from the paper that shows how in 2003, when affordability really hit the wall, the percentage of market share of traditional fixed rate loans dropped nearly 15% from their 5 year average while prime ARMs and subprime products simultaneously picked up that 15% slack. This resulted in roughly 30% of all loans being either a prime ARM or subprime product.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

February’s Key Statistics:

• Single family sales declined 12.2% from January and increased 1.2% as compared to February 2006
• Single family median price declined 4.4% from January and declined 4.1% as compared to February 2006
• Condo sales declined 0.6% from January and increased 4.5% as compared to February 2006
• Condo Median Price increased 0.7% from January and declined 1.8% as compared to February 2006
• The number of months supply of residential properties stands at 12.3 months.
• The “days on market” for residential properties stands at 148 days.

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Zero Down at Countrywide

A couple of weeks ago, when in the initial malaise of the sub-prime meltdown was just settling over the nation, Countrywide Financial appeared to scramble to take some action that might allay the fears of an increasingly volatile market.

Then came a widely publicized account of an “urgent” email which specified that Countrywide brokers were to no longer provide any 100% financing deals as of March 12.

"Please get in any deals over 95 LTV (loan-to-value) today!... Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12."

At first glance, this was a fairly positive development for the company as most would easily agree that lending first time home buyers 100% of their purchase price was probably a bit too risky let alone lending it to buyers with sketchy credit histories.

But still, it seemed a bit light on substance given that home buyers, even ones with sub-prime credit quality or low to no verified income, could still borrow 95% of the purchase price of their home, not to mention that there was never an official follow up release from the company substantiating the changes.

Either way, the traditional media ran with the news of the changes and fact or fiction, company stunt or legitimate development, it eventually made it's way onto CNBC and into the Wall Street Journal.

Then a few days ago, I managed to get my hands on a few Countrywide BC rate sheets dated March 12th as well as several underwriting matrices and was quickly able to arrive at the truth behind the reported changes.

First, although Countrywide may have limited the availability of their 100% LTV products, they did NOT eliminated them entirely.

In fact, 100% financing is still an option, allowing “full documentation” borrowers with credit scores of 620 or better to borrow up to $1 million using either a 100% or 80%-20% product.

Borrowers with credit scores as low as 580 can receive 95% financing allowing them to borrow up to $550,000 and even “no-doc” borrowers with credit scores of 640 or better are eligible for 95% LTV loans of up to $600,000.

Finally, Countrywide is still offering these loan products in the form of risky “interest only” option ARMs as well as continuing to serve borrowers who are “out of bankruptcy less than a year” as one of their ads had promoted.

All in all, I’d say not much has changed over at Countrywide and although their CEO Angelo Mozilo has gone to great lengths recently to assure the markets that they were operating in a sound manner, you would be hard pressed to tell that from their underwriting guidelines.

So, was this a surprise?

Truthfully, given the state of affairs that has been unfolding in the last month, I was a bit surprised… that is, until I read the following press release titled “Countrywide Home Loans Assures Homeowners and Home Buyers That They Still Have Many Mortgage Loan Choices” published late Friday evening.

Here is the most pertinent excerpt:

"We want to assure homeowners that there is still an extensive selection of mortgage loans to suit a multitude of personal and financial circumstances," said Tom Hunt, managing director of Countrywide Home Loans. "We recognize it's been widely reported that some major lenders, like Countrywide, no longer offer 100% financing. In fact, we have made changes to certain subprime and other special mortgage programs, but we have not eliminated 100% financing. We still offer one of the widest selections of low- and no-downpayment options to qualified customers, including those with less-than-perfect credit."

So, it appears that Mozilo may have summed it up best when he told Maria Bartiromo of CNBC the following:

“There’s been a rush to judgment, an overreaction, a baby out with the bathwater… “

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Coming Home to Roost

With the sub-prime meltdown now in full swing, federal regulators seem to be working feverishly to crank shut the recklessly spewing spigot of easy lending.

A little late to the party maybe but at least its confirmation that something other than useless lip-service regarding “toxic” loans and “rate shock” needed to be paid to the situation.

Of course, we did see the initial signs of official concern back in June of 2005 when former Federal Reserve Chairman Alan Greenspan suggested that “the apparent froth in the housing markets may have spilled over into the mortgage markets” while raising concern about “exotic” mortgage products during his testimony to the Joint Economic committee.

This was later followed by the drafting and subsequent finalization in September 2006 of the Federal Reserve’s “Interagency Guidance on Nontraditional Mortgage Product Risks”, a series of new regulatory guidelines that clearly had the effect of creating concern among some of the most aggressive lenders.

About that same time, Congress expressed some interest in the issue, hosting a Senate Banking Committee hearing entitled “Calculated Risk: Assessing Non-Traditional Mortgage Products” in which many government and industry experts spilled their guts on the topic.

Unfortunately, these efforts, although sound an necessary, were essentially all in vain as the real damage had already been inflicted over an unrestrained period years that saw Americans go on a home-buying-investing-building-rehabbing-flipping binge of epic proportions.

While lenders hit new lows of standards and ethics the nations housing markets surged to highs not seen before in history.

Well now the “chickens have come home to roost” so to speak leaving federal regulators in the position of playing catch-up for the years of negligent regulatory oversight.

To that end, late yesterday afternoon the FDIC issued an “Order to Cease and Desist” to Fremont Investment and Loan of California, asserting that Fremont and it’s affiliates Fremont General Credit Corporation and Fremont General Corporation have been practicing “unsafe or unsound banking practices and violations of law and/or regulation”.

Certainly, this effort is to be expected in this new found era of regulatory risk management but what’s most interesting about this initiative is that many of the corrective actions that FDIC is requiring of the company could easily be applied to countless other lending institutions including those not know to be primarily sub-prime lenders.

This is, in fact, the key take-away from this action.

Fremont may have been primarily a sub-prime lender but it is being “spanked” for committing the very same “unsafe” practices that were exceptionally common during the housing run-up.

Most, if not all of the nations lenders, including the largest institutions, have engaged in either direct sub-prime lending or some form of “pseudo-prime” lending, turning a blind eye to both risk and ethics.

Foolishly though, many on Wall Street are refusing to see the writing on the wall, instead favoring a point of view that seeks to recognize the sub-prime fiasco as merely isolated circumstances, contained only to those participants at the lowest end of the economic spectrum and with the poorest credit quality.

One only needs to recount some of the circumstances we have all observed over the last five to ten years and contrast that to prior eras to see the insanity that has become commonplace in the home lending market.

Zero-down, low-doc no-doc, hybrid-piggyback-blended loans, ARMs, rate-shock, interest only, reverse amortization, teaser rates, cash-out refinance, cash-back at closing, 40-50 year terms, the list goes on and on.

There is simply no doubt that, although the melt-down has begun in the sub-prime market it will end, and in a significantly more ugly fashion, in the pseudo-prime market.

The following is the list of actions that the FDIC is requiring of Fremont but could be applied to nearly every lender sub-prime or not:

• Bank’s analysis of a borrower’s debt-to-income ratio include an assessment of the borrower’s ability to meet his or her overall level of indebtedness and common housing expenses, including, but not limited to, real estate taxes, hazard insurance, homeowners’ association dues, and private mortgage insurance.
• In any case in which a loan would result in a debt-to-income ratio greater than 50 percent, the Bank’s policy should set forth specific mitigating factors (e.g., higher credit scores, significant liquid assets, mortgage insurance) that will permit the Bank to determine that the borrower possesses the demonstrated ability to repay the loan.
• Bank must verify the borrower’s income, assets, and liabilities, including the use of recent W-2 statements, pay stubs, tax returns, or similarly reliable documentation, and verify that the borrower remains employed.
• Provisions which require that when the Bank uses risk-layered features, such as reduced documentation loans or simultaneous-second lien mortgages, the Bank shall demonstrate the existence of effective mitigating factors that support the underwriting decision and the borrower’s repayment capacity, which mitigating factors cannot solely be based on a higher interest rate.
• Bank shall develop, adopt, and implement a policy governing communications with consumers t0 ensure that the borrowers are provided with sufficient information to enable them to understand all material terms, costs, and risks of loan products at a time that will help the consumer select products and choose among payment options.
• All communications with consumers, including advertisements, oral statements, and promotional materials, provide clear and balanced information about the relative benefits and risks of the products, and that such communications shall be provided in a timely manner to assist consumers in the product selection process, not just upon submission of an application or at the consummation of the loan.

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