With the drop in home prices you’re house is probably over-assessed. And your property taxes are based on the assessed value. Meaning you are likely paying taxes on value that doesn’t exist.

What many people don’t know is that, with a little homework, you can appeal the assessed value. John F Wasik, writing in Bloomberg recently lays out the basic legwork you will need to do:

1. Make sure your property complies with the legal description – oftentimes the legal description will overstate square footage, number of bedrooms, etc., leading to a higher tax bill.
2. Look at similar houses in the neighborhood that have sold recently. Did they sell for less than your appraised value? Many assessed rates are based on three-year averages, meaning that your house is valued in boom times for these bust times. Once again, higher taxes.

Once this information is gathered, give it to your assessor. But be prepared to appeal to your local board. You can appeal yourself. Or hire a lawyer to do it. Either way, hopefully you’ll be on your way to keeping a little more of your hard-earned cash.

That’s a little more than those who are drowning right now.

One in five U.S. mortgage-payers is underwater.  That’s over 8 million of us.  In times like this I cross myself and thank God I’m a renter.

Home values plunged a collective $2.4 trillion last year.

California, Texas, Nevada, Virginia and Florida form the primary wastelands.

However, according to First American — who tracks mortgages from California’s ground zero — should housing prices drop another 5%, another 2.2 million will get dragged under the swift current of decline.

That takes the tally up to 10.2 million — no surplus to be found in this “new” program. President Barack Obama proposed $275 billion plan makes use of refinancing or restructuring America’s home loans.

All you need: most recent tax return and two pay stubs…oh, and also an “affidavit of financial hardship.”

About $75 billion (good until 2012) would be used to rescue homeowners by paying lenders to alter troubled mortgages – inducing the lender to reduce borrowers interest rates as low as 2 percent.

The catch: you can only modify once.  And if you bought after Jan. 1, 2009, you’re outta luck.  Also, if you were mad enough to try for property worth over $729,750…call your relatives and hand the keys to the bank.  (If you’re lucky, they’ll want to make a reality TV show about your “hardship.” I hear one of the latest TV pilot shows is an ex-Wall Streeter who has to move back home with mom and dad.)

About 5 million folks fall under the aegis of Fannie or Freddie, and they’ve got until 2010 to rework these rotten loans to temporarily sweeter terms.

Now here’s what’s rotten in the state of Washington D.C. – this currently un-legislated and unfunded plan looks pretty similar to its circa 2005-2006 cousin…the brainchild of one Neel Kashkari, interim head of our Office of Financial Stability. (Yes, created by that first “bailout bill” – code name: Break the Glass.)

This fellow from Akron, Ohio, who advanced in life to Hank Paulson minion, took this hallowed fiscal post on Oct. 6, 2008.  Before that, he was a V.P. of Goldman Sachs (NYSE:GS) in San Francisco, where they nicknamed him “the Borg.”  Then, Kashkari approach Mr. Paulson for that solid government job in 2006 – great timing!  He worked shoulder to shoulder with Hank in bailing out Fannie (NYSE:FNM), Freddie (NYSE:FRE) and our perennial problem with the gambling addiction AIG.

In the years between making money for Goldman and overseeing money for Goldman-times-Politics-squared, Mr. Kashkari dabbled in the housing market.  Fat surprise that!

To get to any useful information on his 2006-2008 years in service of our government, one has to sift through all sorts of gush, childhood stories, college professor praise, and even “sexiest man alive” references.

Finally, after typing “Kashkari 2006” into my search engine, I found blogger Angry Bear, corroborating my recollection of forays I conducted just after Paulson tapped this “wet-behind-the-ears” pipsqueak for this interim post.

“HOPE NOW”  — The John the Forerunner of “Making Home Affordable”

Kashkari was the genius behind Bush’s HOPE NOW Alliance in 2007. (Again, it was already far too late to do much).  HOPE NOW looks like Obama’s plan of today, only it “encouraged” mortgage lenders to restructure subprime loans voluntarily. Hank announced it in Oct. 2008 – just after the takeover of Fannie and Freddie.

Like a McDonald’s sign, the HOPE NOW slogan is “Over 1 Million Helped” – when in fact, it just seems that they mailed letters about HOPE NOW to 1 million delinquent homeowners.

Ha!  How many subprime borrowers even live at the address?  I hear story after story of mortgage lenders who convinced folks to take funds for homes they couldn’t afford, then arranging a deal where they could buy a second home!

Ultimately, what HOPE NOW boils down to is a trademarked Hotline: 808-995-HOPE.  The number of calls fielded is what goes into the press release – 1.2 million in 2008 – not the number of workouts.

With today’s new plan, we’re stuck with dollar-for-dollar matching to encourage lenders to notch down their lending rates.  Guess that’s how the government can put its money where its mouth is.

We applaud Kashkari’s immense ability to lobby a mere six years’ work in finance to such a high position, and hope the Senate won’t be asked to confirm him anytime soon.

How About Holding Someone Accountable?

Now, a chum of mine, who worked at Fannie circa early 2000, since retired in disgust.  Why?  Because he saw how pervasive the federally-mandated home ownership tyranny had become.  It sickened him.  Physically… seeing the heads of Fannie conduct their pep-talks and flash pocket-of-the-government comments.  (I’ll warn ya, we’re getting him to write you a “chock-full-of-numbers” shot soon!)

Now, I’m all for buying a chunk of good land, planting a garden, and having a home of one’s own.  But I don’t have my own house yet.  Because the kind of house my income affords is in a neighborhood I can’t walk unmolested in.  Facts of life.  I swallowed them.

I use my credit card for what I can pay off at the end of the month.  And I resist the urge to “hope for better times” and shoulder a nice, hearty “American Dream” mortgage.  Now if only about 5 million or so (giving cushion for those surprised by lost jobs, etc.) had been as grown up as me.

I presume the same toxic shenanigans my friend describes at Fannie were happening over at Countrywide…and we know how that one blew!

So let’s play a little round of “Where Are They Now?” before Gary pours our parting shot.

See What Countrywide’s Iago Does Today: PennyMac

Fannie, Freddie, AIG, are just like blokes foisting a tin cup in our faces… And they’ve got just as many sob stories up their sleeves as you find in the savvy street bum – the one you know is faking it.

Here’s how it runs:

“Got here on the bus, see.  And I went to the hospital here (flashes ubiquitous pink or orange plastic bracelet).  I’m trying to get back to the hospital, and I need some money for the bus.

“(We wait another minute to point out that said hospital is only 10 blocks down the street)  Now is when he trots out the wife or child in the background, hanging in the shadows on the street corner.  “Me and insert name, we’ve just come all the way up from West Virginia…”)”

Here’s someone who’s not holding out the cup – because he’s working the system instead – and better than an welfare check recipient we know of. Stanford Kurland.  And he now stands to mint millions from this home mortgage mess.

Don’t know him? Mr. Kurland played Iago to Mr. Mozilo over at Countrywide Financial.  His bag of tricks?

With the more than $200 million he netted from selling his Countrywide stock, and hundreds of millions raised from private equity giants like Blackrock, he’s buying up the delinquent home mortgages that the government was forced to takeover from the likes of Fannie and Freddie – we’re talking for pennies on the dollar here.

So how’s that for private enterprise making lemonade from lemons? I see it as reprocessing lemonade to shape something that looks, tastes, and smells like a lemon – but ain’t.

He’s got this nice, glass-walled boardroom in L.A. for an outfit called PennyMac.

Yes, PennyMac.  The irony of the name makes my stomach lurch.

Can we say nothing about their abusive lending processes that gave some trash-compactor firm like PennyMac a raison d’être in the first place?  And I can’t help but want to stalk Mr. Kurland when I fly out to West next week and ask him about the proliferation of low-rate “teaser” loans at Countrywide starting back in 2003.

But he’ll blame Mozilo, of course, and say it all went to pot in 2006.  Yes, yes, businesses regulate themselves – when those disgusted by bad business practice defect to create new businesses.

How’s that for “growth?”

Of course our government will abet Stanford and friends’ modus operandi.  What choice does it have?

I leave you with this lovely quote from Depression-hardened investor Leon Levy:

“Business people who often sound like libertarians when markets are going up suddenly sound like socialists and beg for bailouts and protection from governments when the economy heads south.”

Source: Making Home Affordable: The Kickoff Begins

Retail sales have now declined for six straight months – the longest streak on record – as falling home values, tight credit conditions and soaring unemployment have sent consumers into a full scale retreat that is showing no signs of letting up.
The U.S. unemployment rate rose to 7.2% in December, as the economy lost 2.6 million jobs last year, the most since World War II ended in 1945. The Conference Board’s consumer confidence index declined to a new all-time low of 38.0 in December, down from 44.7 in November.

“The economy is staring at a very steep, downward trajectory,” Jim Demasi, chief fixed-income strategist at Stifel Nicolaus & Co., told Reuters. “This shows a very sharp falling in household wealth and job creation. This shows a shock in consumer confidence.”

Sales at clothing stores fell 2.5% in December and sales of sporting goods slid 0.4%. The declines in both apparel categories, as well as a 2.2% drop in same-store sales over the final two months of the year, confirmed reports that the 2008 holiday shopping season was the worst in since World War II.

Overall retail sales were also dragged lower by a 15.9% drop in gasoline prices, which have fallen off a cliff since hitting a record high $4.114 a gallon in July of last year. The national average for regular gasoline is now stands $1.792 a gallon according to auto-service AAA. The decline in gas prices in indicative of a similar drop in the price of crude oil, which is down 75% from its record high of $147 a barrel, also reached last July.

The decline in commodity prices across the board that has resulted slumping global demand is also driving down the prices of U.S. imports.

The Labor Department’s import-price index fell 4.2% in December after a revised 7.0% decline in November. The index posted a year-over-year decline of 9.3% – the largest such decline since the index’s 1982 inception.

Retail Sales Extend Record Streak of Monthly Declines

According to the S&P/Case-Shiller index, home prices in Phoenix, Las Vegas and San Francisco sunk the most – giving back 32.7%, 31.7% and 31.0% of their value in a year’s span, respectively.

The ocean-side metros of Miami, Los Angeles and San Diego followed, with respective declines of 29.0%, 27.9% and 26.7%.

Atlanta, Seattle and Portland entered what Case-Shiller called “the double-digit club,” with annual rates of decline of 10.5%, 10.2% and 10.1%, respectively.

The three best performing housing markets – meaning the ones that lost the least value – are Dallas (-3.0%), Charlotte (-4.4%) and Denver (-5.2%).

On a monthly basis, Detroit was hit the hardest, with home prices falling 4.5% from September to October of this year. That’s a dramatic leap from the 2.5% decline from August to September.

“The bear market continues; home prices are back to their March, 2004 levels.” David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, said in a news release.

Recent statistics from the National Association of Realtors suggest similar pain. Single-family home sales fell 8.0%, the slowest sales growth since July 1997, NAR reported last week.

And the national medium home price fell 13.2% from last year to $181,300, the largest drop since the NAR started tracking statistics, and likely the largest decline since the Great Depression, said Lawrence Yun, the trade group’s chief economist.

“Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets,” Yun said in a news release. “More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages.”

Source: U.S. Home Prices Post Record 18% Annual Drop in October

His line of argument makes sense in the strange, warped world that has emerged in 2008: If you throw billions at the empty suits who made high-risk loans and the empty heads who committed to them, how about making it easier for those who are willing and able to take out a solid mortgage… by reducing mortgage rates and fees and by “providing incentives such as a buyer tax credit for the purchase of all types of homes.”

Just like the U.S. car industry: Have Uncle Sam help out with some cash so unionized car workers can keep making cars.

From a practical point of view, they all have a point. The government will end up paying through the nose one way or another. It’s either soaring unemployment benefits, welfare and chronically reduced tax revenues as people abandon unaffordable homes and get laid off from bankrupt companies.

Or it’s lending debile companies billions of dollars you’re unlikely to see again.

But lowering mortgages further from near-historic lows and increasing your mortgage interest tax deduction does not create demand for houses. Nor do government-subsidized parking lots full of brand-new Suburbans. Even though my father-in-law assures me that GM is now producing the best vehicles ever…

For the simple reason that people don’t buy homes or cars when they’re unsure that they have a job to go back to a week from now.

We’ve entered a vicious cycle: If consumers don’t spend, employers cut payrolls. Unemployed consumers spend even less… and eventually default on loans and mortgages, bringing down home values, stock valuations, business and industry.

Someone upstairs has bumped into the universal “reset” button. And throwing good money after bad will not stop the chain reaction.

As a culture, we’re getting an object lession in the meaning of value. As I wrote in my Hot Trading Secrets in 2005: “Value is defined by what someone else is willing to pay, or by what someone wants to receive at any particular moment.”

There is now the chance that nobody is willing to pay anything. Zero, as in yesterday’s Deutsche Bank projection of GM’s share price, is now a likely valuation for all kinds of assets.

And that’s on a good day!

Value exists merely as the subjective perception that you can arbitrage an asset to your own benefit. That the house you sign over your savings and the bulk of your cashflow for will be cheaper than renting and higher in price in the long term. That the new car will lower your transportation cost, open up job options, or is cheaper than hair plugs. That the stock you buy will be worth more in the future than you spend on it now.

In that regard, we’re not so much looking at the destruction of valuation… but a zeroing out of the core concept of value.

Nothing illustrates this better than the development of oil prices. Driven to $147 by the expectation that even historic highs would prove to be value propositions, oil’s steep downward trajectory now points at a complete destruction of value. Brent crude oil prices today sank under $55 a barrel, a 21-month low.

On the NYMEX, light sweet crude for December dropped $4 to $58.32, the lowest level since March 21, 2007.

Like with consumer spending and GM stock prices, the bottom for oil is as elusive now as it was a month ago. My predictions of $50 oil, which elicited howls of protest just a month ago, now look like they are on the conservative side. Oil at $30… or even at $10 a barrel now are more probable than oil at even $100.

Which means we will see parity between the dollar and the euro by April 15… and a steep plunge in gold prices. Based on the recent oil-to-gold ratio, $50 oil would peg the gold price at $375. $30 would mean gold at $225. And $10 oil could mean gold at $75.

Goldbugs will argue that oil-to-gold ratios work only on their way up. Or that historically, it was twice the 7.5 factor we’ve seen in recent years.

Alright. I deal. Here’s that best-case scenario: At 15, twice of the average of recent years, we get $750 gold at $50 per barrel of crude oil. Sounds reasonable. But that still leaves us with $450 gold at $30… and $150 gold at $10.

Unreasonable? Gold bugs have selective memories. But in the past 30 years, gold prices have spent far more years below $500 than above. And more years below $400 than above $700.

Who, after all, will buy gold jewelry when the Arab States tally up their monthly maintenance bills for indoor skiing resorts?

Source: GM’s Zero Valuation: Portent of things to come

RealtyTrac Chief Executive James J. Saccacio said the 243,353 foreclosure filings last month was the highest since his firm began tracking the data in January 2005, The Wall Street Journal reported.

“Although only about 2% of households nationwide are in foreclosure, these properties contribute to already bloated inventories of homes for sale, and put downward pressure on home values,” Saccacio noted.

Nationwide, one in every 519 households received a foreclosure notice.

California, Florida, Nevada and Arizona were the hardest-hit states. California had the highest number of total filings with 64,683 properties falling into foreclosure while Nevada had the highest foreclosure rate, with one in every 146 households filing for foreclosure.

And while current foreclosure levels are at record highs, Saccacio expects the situation to get worse. The credit markets remain tight, making it difficult for overextended homeowners to obtain refinancing that might help them to avoid foreclosure.

“Loan modification isn’t working,” Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, told Bloomberg News. “It’s extremely difficult for a homeowner to talk to a servicer and even if they do, it’s hard to get the servicer to change the terms. You get voice-mail hell, they don’t return calls, you can’t get a live person on the phone.”

At the same time that consumers are finding it hard to obtain needed financing, the high level of housing inventory, currently at an 11-month supply, is making it very difficult for distressed homeowners to sell.

Saccacio stated that he expects foreclosure filing levels to “remain high and even increase” through the end of the year, particularly “given the number of loans due to reset through the middle of 2008 and the continuing weakness in home sales.”

In fact, banks will continue to seize about 60,000 properties a month through December, Bloomberg reported. At that rate, about 1 million U.S. homes, or 25% of all homes for sale, could be bank-owned, Rick Sharga, RealtyTrac’s executive vice president of marketing, said in an interview.

Source: Home Foreclosures Continue to Rise 

The “next big thing” our friends at The Daily Reckoning recently predicted, “will be downsizing, cutting back, making do. Barely on the radar screen now, thrift is coming into focus more clearly day by day. So far, people are a bit embarrassed about it…a bit ashamed that they have had to cut back. But soon, it will be popular…fashionable…and, finally, almost obligatory.”

This new austerity craze — if/as/when it arrives — will impose hardships on many American companies. But a select few might actually benefit.

The cause(s) of downsizing are pretty clear. Home values are falling so sharply that very few homeowners can still pull equity out of their houses. Stock prices are also drifting lower, more or less. Meanwhile, inflation is ramping up.

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Prices are rising in Europe as in America. Bread is up 12 percent in Germany over the last 12 months. Butter has gone up 45 percent. Milk, 25 percent.

Higher prices often stem from printing more dollars. “Force-feeding the rest of the world $2 billion per day (more consumption),” Warren Buffett reminded us last week, “is inconsistent with a stable dollar (more inflation).”

We share Mr. Buffett’s concern. Bernanke keeps printing. Politicians keep promising. Bridges keep crumbling. Wars keep spending.

With regret, we read last week that the projected total cost of medical care for U.S. veterans of the Iraq and Afghanistan wars will top $500 billion, a figure on par with the total military spending to wage these wars to date. And speaking of military might, Defense Secretary Robert Gates estimated in testimony before the Senate Armed Services Committee that the Pentagon will spend upward of $685 billion next year alone. That’s $170 billion more than the $515 billion the president proposed in his first-ever $3 trillion budget.

If that weren’t enough, Gates doesn’t even expect that number to stick. “I have no confidence in that figure,” he admitted. You can expect the estimate to rise in the near future.

A hundred billion here…a hundred billion there. Who’s counting?

Apparently, no one.

But that’s not to say the S&P can’t weather the storm. The companies representing the Standard & Poor’s 500 index now derive 49 percent of revenue from foreign markets, up from 30 percent in 2001. Meaning, those with money to burn (Southeast Asian consumers) should keep earnings reports strong. Stronger repatriated currencies should only bolster this trend.

Unfortunately, many Americans believe a strong S&P equals a strong American economy. We tend to see another American economy. We see an economy riddled with debt, more debt and even more debt. We see the American consumer eerily close to tapping out. Thirty-four percent of Americans now believe they are among the “have-nots.”

It serves to reason. More than 405,000 homeowners lost their homes to foreclosure last year.

Most middle-income Americans, the ones driving our buy-now, pay-later economy, have spent well beyond their means. Americans currently perpetuate a negative savings rate. That can’t last forever.

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Cheap oil and cheap credit have fueled this era of consumption…this gilded age of instant gratification.

I must be looking at the equities through a different lens, because what I see and what Wall Street is apparently looking at is much different. Somehow the market remains positive, yet signs of ominous doom continue to build. The charade cannot last.

Just look at Harley Davidson’s (HOG:NYSE) earning report yesterday. Because domestic sales dropped by more than 13% during the year’s first quarter, the company will cut its annual production by 27,000 motorcycles and fire 8% of its workforce. That is not going to help the economy.

This news should be a neon sign that the economy is in trouble. But it hasn’t been.

You cannot open a newspaper without reading of major job cuts. The banking industry got slammed, now the ripples are spreading throughout the pond. Unfortunately, these waves are not going to slowly diminish, they are going to get larger and larger until they come crashing to shore.

This old mule ain’t what she used to be

We need to stand back and take a look at what has been driving the American economy over the past few years. It is a good opportunity to re-visit Alan Greenspan’s “irrational exuberance” phrase.

The market was overvalued. Fundamental value no longer had a meaning, but as long as values kept rising, everybody was happy. In the end, if things got too expensive, we could just take out a larger home equity loan. The world was grand.

But now, it takes sheer insanity to be willing to pay the prices some equities are getting. Let’s face it, the economy is moving backwards. Home values are plunging. Consumers are buying less. And manufacturers are scaling back.

Down and down we go

It is creating a vicious circle that will create more job loses, reduce consumer spending even further, and slow the economy that much more. Just in the last week, thousands of Americans lost their jobs. It is only going to get worse.

If there is one glimmer of hope (it is what is propping up the market today), it is the global markets. Even Harley Davidson admits its overseas sales were strong. Caterpillar announced the same thing this morning. While the economy is slowing here and the dollar continues to plunge, foreign economies continue to plug along… at our expense.

But I cannot be so naive to believe those countries will not be affected by our economic downturn. This is a global economy that is heavily linked to the prosperity of the American economy. If we stop buying, the countries that make those goods are going to be in serious trouble.

This is just the tip of the iceberg. Yesterday, people bought less motorcycles. Today, unemployment lines are growing. Tomorrow, who knows?

I bet it won’t be pretty.

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