Foreclosure Activity Rises to Highest levels Since the 1930's

Good Afternoon!

Anyone feel like they just got off a roller coaster after watching the markets today? Fannie and Freddie continue to be center stage. Paulson and Bernanke were again out barking that both are safe and the government will be there if capital issues arise.

The big question is slowly becoming are Fannie and Freddie too big too fail? I gave you my answer last night. The government will ensure their survival, but that doesn't mean they cannot fail on Wall St.

I will reinforce what I said yesterday. The government will not take on $5 trillion in "bubble debt". This is the amount of housing debt that these two Ponzi machines have ran up. Our government is not that stupid.

Back to today. So Paulson and Benanke were grilled by Congress this morning. They answered many tough questions with the same "everything will be ok" rhetoric that they did yesterday.

They gave no firm data on why they think Fannie and Freddie are well capitalized. They also failed to explain exactly how they plan on saving these two GSE's if they do begin to fail. I believe their failure is inevitable as private entities.

I mean lets look at the foreclosure data that was released today:

"Foreclosures Rose 53% in June, Bank Seizures Tripled

July 10 (Bloomberg) -- U.S. foreclosure filings increased 53 percent in June from a year earlier and bank seizures rose the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes.

More than 252,000 properties, or one in 501 U.S. households, entered a stage of the foreclosure process, RealtyTrac Inc., a seller of default data, said today in a statement. Bank seizures rose 171 percent, the most since the Irvine, California-based company began tracking statistics on default notices, warnings of a scheduled auction and repossessions in January 2005.

``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.''

Foreclosure activity is the highest since the Great Depression of the 1930s, said Rick Sharga, RealtyTrac's vice president of marketing. Home prices, which fell the most on record in April, according to the S&P/Case-Shiller index of 20 U.S. metropolitan areas, have created a cycle where shrinking equity drives homeowners into foreclosure, which in turn further pushes down home prices, Sharga said."

My Take:

Yeah right Mr. Bernanke, everything will be just fine. Give me a break. It doesn't take a brain surgeon to realize that the above data shows that the housing market is on the brink of collapsing . Foreclosure activity hasn't been this bad since The Great Depression!

How can they be so confident that Fannie and Freddie are fine when housing is literally self destructing as we speak?

Banks are grabbing homes at the highest rates on record. Prices are free falling, the credit markets remain frozen. Paulson and Bernanke are starting to look like fools as they try to calm the sheeple. Plain and simple.

Notice the statement by Mark Zandi above explaining that foreclosures are worsening and will stay with us until the next decade.

What happened to the second half recovery that Wall St. promised us?? HA! What a joke! Now we are hearing that this will last well into the next decade. What does that mean? 2015 or 2016?

Remember folks, the economy will not grow to any large degree without housing and Wall St. Bank of America's Ken Lewis said in his speech yesterday that he saw the housing issue being with us until 2013.

You are slowly but surely hearing the reality of the housing story. Its going to be a long, slow, painful process before housing begins to recover.

Rick Santelli

This is one of the few guys that I love on Bubblevision. The bond guys tell you the real story on Wall St. He made a great point on the Fannie/Freddie debt today from a bond traders perspective.

He explained the reason spreads are widening on this debt is because the bond market believes that Fannie and Freddie will get buried before Congress gets a chance to act and help.

He also explained that Fannie and Freddie came too late to the capital raising party which is making traders even more skeptical about Fannie and Freddie's future as private entities.

You see, the SWF's and big money guys threw billions and billions to Wall St. over the past year when all the firms raised capital. They were then pummeled by losses as the financials continued to lose billions and watched their share prices plummet.

So ask yourself this question if you were a big money wealth fund that has already been burned by throwing billions at Wall St.:

If Fannie and Freddie came to you asking for capital so that they could continue to do loans in a housing market thats in the midst of the biggest collapse since The Great Depression what would you say? Ahhh No?

So the bond market is asking the logical question: Where is the money going to come from if the big money guys are out of the game? Its pretty obvious Fannie and Freddie's next stop will be Washington DC. The bond traders think that by the time help arrives it will be too late.

These companies are in deep trouble as private entities, and there is no obvious answer as to how this plays out.

Bottom Line:

The foreclosure data today was horrific and took us another step closer to The Housing Time Bomb.

2016 can't come fast enough.