On Saturday I wrote that foreclosures were on my mind. It seems that foreclosures are on other minds too, as evidenced by this Washington Post article. Let's take a look:

"Philadelphia, its suburbs and indeed much of Pennsylvania have experienced a foreclosure epidemic as low-income homeowners take on mortgage debt they cannot afford. In 2000, the Philadelphia sheriff auctioned 300 to 400 foreclosed properties a month; now he handles more than 1,000 a month. Allegheny County, which includes Pittsburgh, had record auctions of foreclosed homes, and officials speak of a "Depression-era" problem. The foreclosures fall particularly hard on black and Latino families."

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"Foreclosure rates rose in 47 states in March, according to Foreclosure.com, an online foreclosure listing service. The rates in Florida, Texas and Colorado are more than twice the national average. Even in New York City and Boston, where real estate markets are white-hot, foreclosures are rising in working-class neighborhoods."

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Fannie Mae claims "The solution lies with more counseling and fine-tuning of mortgages for lower-income families."

No! I say one of the root causes of the rising foreclosures we see is blatantly reckless "fine tuning" as opposed to a lack of "fine tuning". We have interest only loans, 1, 3, and 5, year arms, 40 year loans, cash out refis to support consumption, loose credit standards, zero % down loans, and even 125% loans. Finally we have a huge rise in what will surely bring a rash of fraud charges in the years to come: stated income and no doc loans. What more creative "fine tuning" could possibly be next? Anyone for 50 year loans, 100 year loans, or 200 year loans? Fannie Mae wants to get anyone who could breathe into a house. Perhaps I mean Fannie Mae wants to get anyone and everyone into three houses. The reckless behavior of lenders, who are all too willing to drop the worst loans on Fannie Mae's lap, guarantees rising home prices for everyone. The Pennsylvania Banking Department seems to agree with me.

"We've had a national agenda that's putting people into homeownership who are not ready for it," said A. William Schenck III, Pennsylvania's secretary of banking and a former bank president. "This is a fact that the nation must deal with unless we want to wreck the credit of a lot of middle-class Americans."

Rest assured that president Bush's "ownership society" in conjunction with "fine tuning" and loose lending standards is going to cause one of the biggest national housing problems since the great depression.

Foreclosures seem to be on the Fed's mind as well. Since April 22, no fewer than four FED governors (Kohn, Greenspan, Guynn, and Ferguson) have all sounded alarm bells on housing. CalculatedRisk addresses this in a fine article entitled Housing, the Fed and M3.

It now seems that Greenspan is going to keep hiking until he breaks housing. Paradoxically, every FED tightening lends support to 10 year treasuries and the 30 year long bond. It seems the bond market can sense the housing debacle that is developing. I think 4% yields will look rather nice once housing implodes and takes the stock market down with it. We have only just begun to see rising foreclosures. Wait until California and Florida get into the act. In the meantime party on.