U.K. home repossession claims by mortgage lenders increased 16% from a year ago to their highest level since the early 1990s, Bloomberg News reported Friday.

The U.K.'s Ministry of Justice said possession claims, the first step in the foreclosure process, increased to 38,688 in Q1 2008, from 27,530 in Q1 2007, Bloomberg News reported.

Anglo-American housing slump

London-based economist Mark Chandler told BloggingStocks Friday the large foreclosure rise indicates that the air is easing out of the housing balloon, and that the housing correction that began in the United States, is "clearly washing shore in the U.K."

The ever-incisive FT columnist Martin Wolf offers prudent and timely advice concerning the reforms needed to ease credit market doldrums and right the global financial state of things.

One key practice Wolf would like to see addressed is bank / mortgage lender selling of mortgages they originate.

Designers of the practice had good intentions: It was designed to free-up capital so banks / mortgage lenders could have more money available for future homebuyers. A noble intention.

Unfortunately, as tradition reminds us, the road to perdition (and record housing sector slumps) is paved with good intentions. The problem, Wolf notes, is that the originate-and-distribute model encouraged banks / mortgage lenders to originate (in many cases for handsome fees) high-risk, very-poor-credit-quality mortgages with reckless abandon, because originators knew that the loan would be sold, and its status as a performing asset would be entirely someone else's problem. Save the best (mortgages), get rid of the rest.

It's not surprising, Wolf notes, that the originate-and-distribute model became laden with sloppy, irresponsible and even fraudulent loans. Wolf's reform: originators must be required to retain a portion of the equity of securitized loans. Hence, if / when they go bad, the originator loses money too.

Economic Analysis: Wolf's proposed financial / bond market reform is on the mark. If every party, including the originator, has a stake in a mortgage's repayment status, that will lead to higher-quality loans, while at the same time retaining the secondary market's benefit of freeing-up capital for new mortgages.

In the private sector, as in public policy, sometimes blinders prevent one from seeing the entire landscape, and a good example of that may be the current status of the U.S. housing sector.

Banks, mortgage lenders, mortgage-backed securities holders and public officials have tended to focus on the plight on subprime and comparable mortgages, and rightfully so, as these loans constitute the largest pool of non-performing assets secured by homes.

U.S. housing: A psychological shift

Still, as economist Glen Langan points out, the unusual focus on subprime has caused the nation to overlook a broader trend regarding the housing sector -- namely, the psychology of the housing market.

"What we're not grasping yet, as a nation, is that even with programs to help people stay in their homes and avoid foreclosure, the public's stance toward the housing market has changed," Langan said. "The psychology of the housing market has changed. And this has little to do with at-risk mortgages. This a psychological shift among middle-income and upper-middle-income homeowners and taxpayers. It looks like they'll be sitting on the fence for a long period of time, and this will delay the housing recovery, hurting the economy in the process."

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Black & Decker is worth a review.

The Black & Decker Corporation (NYSE: BDK) is a global manufacturer and marketer of power tools and accessories, hardware, home improvement products, and fastening systems.

In general, analysts like BDK's recent restructuring to improve productivity and operating margins. For the most part, analysts are forecasting low-single-digit sales growth for 2008 and 2009, weighed down by the housing sector's doldrums.

AP reports that Countrywide Financial Corp (NYSE: CFC) lost $893 million in the first quarter. That $1.60 a share loss was not exactly what analysts had forecast -- they were looking for a profit of two cents a share.

Meanwhile the LA Times reports that Countrywide CEO Angelo Mozilo took in $10.8 million and cashed out $121.5 million in stock gains as his company got hammered by losses on sub-prime loans in 2007. Mozilo also enjoyed perks worth $176,513, including $44,454 in rides on the company's jet; $23,755 in automobile use; $8,581 in country club dues; and $31,238 in company-paid tax and investment advice. Mozilo faces an informal U.S. inquiry into his stock sales.

And Countrywide's financial condition is deteriorating fast. It set aside a $1.5 billion reserve to cover loan up 62% from $925 million in the fourth quarter of 2007. Moreover charge-offs totaled $606 million during the first quarter. Fortunately, Countrywide has an exit strategy. In January, Countrywide agreed to sell itself to Bank of America (NYSE: BAC) for about $4 billion in stock. The question is whether Bank of America will pull out of the deal now that it sees the rising costs it will incur if it moves forward. Since Countrywide trades 15% below that takeout price, the market has its doubts.

Investors don't seem happy with today's announcement -- the stock was down 5% in premarket trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Sales of existing homes fell slightly in March 2008, the National Association of Realtors announced Tuesday, as resales continued to lag amid the nation's worst housing slump in more than 15 years. It was the fourth existing home sales decline in the last five months.

Sales advanced at a 4.93-million-unit annualized pace in March 2008, the NAR said. Economists surveyed by Bloomberg News had expected March 2008 existing home sales to register a 4.95-million-unit annualized rate. The February 2008 existing homes sales statistic was revised to a 5.03-million-unit annualized pace.

Regionally, March 2008 existing home sales fell 6.5% in the Midwest, 3.5% in the South, and 2.2% in the West. Sales roses 2.2% in the Northeast.

Meanwhile, the U.S. median home price plummeted 7.7% to $200,700 on a year-over-year basis. The median price was $217,400 a year ago.

Home foreclosures in the United States rocketed 57% in March 2008 compared to a year ago, as more homeowners relinquished their homes to lenders, according to data compiled by RealtyTrac.

More than 234,000 properties were in some stage of foreclosure - - roughly 1 in 538 U.S. households, RealtyTrac announced Tuesday.

Nevada, California, and Florida had the highest foreclosure rates, while Vermont, North Dakota, and South Dakota had the lowest.

Handing back the keys

Economist Glen Langan said Tuesday he's not surprised that RealtyTrac indicated that the large foreclosure increase showed that many homeowners were simply walking away from homes worth substantially less than the mortgage and deeding the home back to the lender.

"If you can't refinance -- and in many cases today with more-rigorous mortgage requirements, you can't -- a home sale probably doesn't make much sense," Langan said. "If it's a $20,000 gap, a mortgage of $400,000 and a house value of $380,000, you probably sell, or search harder to find a lender who will refinance the note."

"But if you hold a mortgage for $400,000 and the house is now worth $200,000 or $175,000 or even less, it makes makes very little sense to sell, so you simply hand the deed and keys back to the lender, and say 'It's yours,' " Langan said. "And that's what a lot of homeowners are doing now."

However, Langan underscore that 'handing back the keys' is not without it downside. Doing so will still lower a borrower's credit rating, although Langan admits "that's probably at the bottom of concerns for many homeowners about to give up their homes." Also, the rising foreclosures will add large amounts of inventory to an already oversupplied housing market, depressing home prices for a longer period of time.

Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.

The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.

Scapegoat-of-the-moment

The ever-incisive FT columnist Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.

Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut, Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.

U.K. consumer confidence fell to its lowest level in almost four years in March 2008, as the housing downturn continued to weigh on consumer sentiment, Bloomberg News reported Wednesday.

Britain's Nationwide Building Society's index of sentiment declined one point to 77, its lowest level since records started in May 2004. The result is based on a survey of 1,204 people conducted by Taylor Nelson Sofres from February 18 to March 20, 2008.

U.K. housing sector weighs

Economist Mark Chandler, based in London, told BloggingStocks Wednesday the fall in housing prices is beginning to weigh on U.K. consumer confidence. The average home price in the United Kingdom fell 2.5% in March 2008 to 191,566 pounds or $379,000, according to a survey by mortgage lender HBOS Plc., according to Bloomberg.

My Ph.D. adviser David E. RePass, professor emeritus at the University of Connecticut, used to frequently recite an axiom about the U.S. Congress that rings true, regardless of era, or circumstance.

"Congress does not react, unless not reacting will result in the wrath of the American voter."

Well, concerning housing, it looks like Congress sees the wrath of the American voter ahead because the legislative body is starting to react.

Two measures working their way through Congress may ease the housing crisis. The first, a bipartisan Senate measure, is a modest step to address the rise in home foreclosures, The New York Times reported Friday.

U.S. new home sales fell to a seasonally adjusted, annualized pace of 590,000 in February 2008 -- a 13-year low, the U.S. Commerce Department announced Wednesday (click here for the pdf).

Economists surveyed by Bloomberg News had expected February 2008 new home sales to register a 575,000 annualized rate.

Sales have now declined for four consecutive months, and are down about 30% in the last 12 months.

Meanwhile, January 2008 sales were revised up slightly, to 601,000 from the earlier released 588,000.

The number of homes on the market declined 2.1% to 471,000, the lowest level since July 2005. Also, the median sales price fell 2.7% in February 2008 to $244,100.

The dollar's modest rally faded Tuesday afternoon as traders calculated that the U.S. Federal Reserve is likely to continue to cut key, short-term interest rates by another 50 basis points to jump-start the anemic U.S. economy.

In mid-day Tuesday trading, the dollar was substantially lower against the world's other major currencies. The dollar fell almost 2 cents to $1.5596 versus the euro, about one-half yen to 100.22 versus Japan's yen, and about 1.5 cents to $2.0003 versus the British pound. The dollar also fell about 1 cent to $1.0095 versus the Swiss franc.

Short-lived dollar rally

Some traders had argued that the dollar would be able to post its second straight weekly rise on renewed confidence that the U.S. economy would perform better than expected, with a shallow recession, said Andrew Resnick, independent currency trader. But those comments most likely will be categorized as 'famous last words' based on recent U.S. housing data, which suggests continued U.S. economic sluggishness up ahead, he said.

U.S. home prices in 20 major cities declined 2.4% in January (pdf) 2008 -- a record, according to the Case-Shiller Home Price Index released Tuesday.

Meanwhile, the 10-city composite set yet another new record with an annual decline of 11.4%. The 20-city composite recorded an annual decline of 10.7%.

Las Vegas and Miami were the weakest markets in January 2008, reporting double-digit annual declines of 19.3%, followed by Phoenix with an 18.3% decline.

Regional home loan banks will be allowed to boost holdings of mortgage-backed securities by more than $100 billion, federal regulators announced Monday, (pdf) in still another effort to both increase liquidity to and stabilize the mortgage market.

The decision by the Federal Housing Finance Board enables banks in the Federal Home Loan Bank system to increase their holdings of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) securities. The FHFB said it will let banks use their existing capital to increase their holdings of agency mortgage-backed securities for two years. The purchases are restricted to securities guaranteed by Fannie Mae and Freddie Mac.

The move comes one week after the regulator for Fannie Mae and Freddie Mac eased capital requirements for the two home mortgage purchasers, enabling them to add another $200 billion into the mortgage market.

Further, while the overall combined capital infusion amount, about $350 billion, represents a fraction of the $4.5 trillion in mortgage backed securities backed by Fannie Mae and Freddie Mac, economists generally agree the money represents a non-insignificant piece of the housing recovery puzzle.

Housing Sector Analysis: Another positive data point for the U.S. housing sector, which brings the total positive data points this Monday to two, a record of late for the beleaguered sector. The additional capital amount is small, in market terms, but every additional capital amount, or investor, helps, to use a cliché. Still, investors (and homebuyers) should keep in mind that the nation faces at least another two quarters of housing sector consolidation, with a 9.6-month supply of existing homes for sale documenting that reality. Until inventory levels drop for several months in a row, economists and analysts will be reluctant to make bolder statements about the housing sector's health.

Existing home sales rose 2.9% in February 2008 to a seasonally-adjusted annual rate of 5.03 million units, the National Association of Realtors announced Monday. Economists surveyed by Bloomberg News had expected February 2008 existing home sales to total a 4.85 million unit annualized rate.

Sales are down 23.8% compared to a year ago. Meanwhile, inventories fell 3% to 4.03 million units, which represents a 9.6-month supply at the current sales pace.

The median sales price also plummeted by 8.2% compared to a year ago, to $195,900. February 2008 sales by region were as follows: Northeast, up 11.3%; Midwest, up 2.5%, South, up 2.1%, and the South, down 1.1%.

February 2008 sales of single-family homes rose 2.8%, while condo sales rose 3.7%.

Housing Sector Analysis: For a change, a good monthly existing home sales report. Sales did not rise dramatically, but the important point is that unit sales did not decline substantially in February 2008 either, and it's likely lower home sale prices are beginning to stimulate modest demand. Still, a word of caution to potential home buyers in the United States: median home sales prices are likely to continue to decline through at least Q3 2008. One month's rise in existing home sales is not nearly enough to suggest a trend, and inventories are likely to continue to rise given current foreclosure trends, and due to the approaching spring/summer period when many families planning to move list homes for sale.