Retail sales AND foreclosures surge

The headlines say that retail sales surged at a record pace. How did they do that with foreclosures rising and employment on the critical list? Here is a possible explanation.


Lender Processing Services just put out its "Mortgage Monitor Report," and we have a new record:

The nation's foreclosure inventories reached record highs. February's foreclosure rate of 3.31 percent represented a 51.1 percent year-over-year increase. The percentage of new problem loans also remains at a five-year high. The total number of non-current first-lien mortgages and REO properties is now more than 7.9 million loans. Furthermore, the percentage of new problem loans is also at its highest level in five years. More than 1.1 million loans that were current at the beginning of January 2010 were already at least 30 days delinquent or in foreclosure by February 2010 month-end.

Okay, so 7.9 million Americans are not paying their mortgages.

Studies show that Americans are now far more likely to pay their other bills first before their mortgage (which is a big turnaround historically speaking.)

That means they pay off their credit cards, cable bills, car loans in place of their home loans. Some are forced to, while others are doing so strategically.

Paul Jackson, publisher of Housingwire.com, wrote a fascinating article last week that put this into real cash perspective.

He cites an older stat of 7.4 million delinquent loans, but you'll get the picture.

First he describes a case study of someone who applied for the government's Home Affordable Modification Program.

The person had an $1,880.00 monthly mortgage payment on which they'd defaulted, but said person's monthly bank statement showed payments to a tanning salon, nail spa, liquor stores, DirecTV bill with premium charges, and $1,700.00 in retail purchases from The Gap, Old Navy, Home Depot, Sears, etc.

Writes Jackson:

Even if you assume that just half of the current 7.4 million currently delinquent mortgages fit this sort of ’spending profile’ (that is, they are spending their mortgage) and you assume a $1,000 median monthly mortgage payment for most U.S. homeowners — you get a $3.7 billion boost per month to consumer spending. It’s certainly enough spending to matter in the overall scheme of things.


Other studies have shown that borrowers are more likely to default on loans if they have friends or neighbors who have.

On top of that, the rate at which formerly current borrowers are defaulting now is rising. I guess it's just another, innovative way of using your home as your ATM. It currently takes well over a year, in some cases nearly two years, to go from missing a payment to being chucked out of your home.

The mortgage holders are acting logically. They have a mortgage on properties that are underwater and not increasing in value. They are thinking who cares if the bank takes it over. The banks are dragging their feet on foreclosures and the government is encouraging this kind of behavior.

There are alot of broke people that are putting money into houses that are declining in value. They are getting nothing out of it. They are angry AT THE BANKS and rightfully so. The banks are getting FREE money. Why not get free money like the banks. We are breaking down the structure of society. They are talking mortgage modifications for the unemployed. Santa Maria. Capitalism is becoming socialism. They are acting as if it is the same old same old but it isn't. I ask what is in it for the TAXPAYERS???????

THE AVERAGE CEO MAKES 350 TIMES THE AVERAGE WORKER. WHAT IS HAPPENING IS THAT THE EXTREMES ARE BEING REWARDED AND IT IS BEING PAID BY THE MIDDLE CLASS.

Does this sound familiar? How about looking at Mexico, Venezuela, Russia that's the way it is there. The poor are rewarded because they might riot. The rich are rewarded because they can hire the poor. The middle class has no representation but that has its problems too because the middle class is becoming the poor class and in a hurry!

I don't know about you but I think this is not going to work much longer. the media is selling this recovery so hard but most people see right through it. They are covering up The macro economy that is going to take everything down. The recovery is a phony as the above example.

The rising stock market at this level 11000 is a gift short and great opportunity for the middle class to call BS on the system and that I am doing right here and right now.

The Fed and the treasury are doing their thing in the markets to convince the people that everything is ok. They are masterful at this but in the end the emperor has no clothes. The longer they do this the easier the short gets.


Mikey