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HOUSEHOLD NET WORTH FALLS IN Q2: FED REPORT By Mark Lieberman, Economist for the Five Star Institute household real estate, household net worth fell $322 billion in the second quarter, the Federal Reserve reported in its quarterly Flow of Funds report. While the value of owner-occupied household real estate increased in the second quarter, total residential mortgage debt fell almost $51 billion. As a result, owners' equity increased just more than $406 billion and owners' equity as percentage of the value of the real estate rose to 43.1 percent, the highest level since Q2 2008, according to the report. The report is the most comprehensive look at aggregate household and corporate balance sheets and income statements, a sort of blood pressure reading on the economy and its components. The second-quarter drop in mortgage Despite a $355 billion increase in the value of have a profound effect on the economy. The economic theory of "wealth effect" holds that consumers tend to spend more if they "feel" wealthier even if income drops. Indeed, the total value of household assets The decline in household net worth could REPORTS OF FORECLOSURE RESCUE SCAMS ON THE RISE: FINCEN fell $304 billion in the second quarter while household liabilities rose $17 billion. The drop in assets was due to a $475 billion decline in the value of stock holdings. The "wealth effect" theory differentiates between the growth in the value of real estate and stock market assets with the change in real estate values having a larger impact on spending. According to the report, disposable debt marked the 13th straight quarterly drop. According to the report, aggregate mortgage debt at the end of the second quarter was $9.59 trillion, the lowest level in six years when homeowners owed $9.49 trillion and their equity represented 57.9 percent of the value of their homes. The drop in household net worth, 0.5 submitted 17,476 Mortgage Loan Fraud Suspicious Activity Reports (MLF SARs), marking a 41 percent yearly decrease, according to the Financial Crimes Enforcement Network (FinCEN). Even though reports of MLF activity made a steep drop and continue to fall year-over-year, reports of foreclosure rescue scams increased. A foreclosure rescue scam counts as any In the second quarter of this year, filers percent, was the first since Q3 2011 when it dropped $2.6 trillion, or 4.5 percent. Net worth is the difference between assets and liabilities. A drop in net worth means debts grew faster than assets. household income increased 0.9 percent, or $111.4 billion, in the second quarter to $11.9 trillion compared with a 1.5 percent increase, or $178.1 billion, in the first quarter. Quarterly income growth since the onset of the Great Recession in December 2007 has averaged 0.7 percent, including four quarter-over-quarter declines from the third quarter of 2008 through the third quarter of 2009. (Disposable personal income rose 0.3 percent in the second quarter of 2009.) The slippage in personal income growth saw 1,325 MLF SARs containing the term "foreclosure rescue" in the narrative part of the form. The figure accounts for 8 percent of all 17,476 MLF SAR reports. If foreclosure rescue SARs continue at the scheme targeting homeowners facing foreclosure or default on their mortgages. During the second quarter of 2012, FinCEN current pace into the remainder of 2012, the yearly total for foreclosure rescue reports will be significantly higher than 2011. Based on the 2,360 foreclosure rescue SARs signals another challenge to an economy heavily dependent on personal consumption spending, which is more than 70 percent of the nation's gross domestic product. HOUSING CAN'T SAVE THE ECONOMY: REPORT Both existing and new home sales are on the rise, but no amount of improvement in the housing sector will bring relief to the overall economy, which continues to struggle, according to Capital Economics. Existing home sales rose 10 percent from January to August, and new home sales rose 30 percent more than the same period. The Fed's QE3 announcement may received in the first half of this year, FinCEN estimates 4,720 foreclosure rescue SARs for 2012. In 2011, there were 2,782 foreclosure rescue SARs and only 554 in 2010. California had an especially high concentration of foreclosure rescue SARs. About half—49 percent—of the second- quarter foreclosure rescue SAR subjects were in California. The state also accounted for 37 percent of all MLF SAR subjects. FinCEN offered explanations for the domestic product] growth," Capital Economics contends. The reason, Capital Economics points out, is housing makes up too small a portion of GDP to have a major impact. Residential investment made up 2.4 percent strengthen these numbers. It instigated a decline in the mortgage-backed securities yield from 2.4 percent to 1.7 percent and is expected to keep mortgage rates low. While this may entice more homebuyers "the bottom line is that housing is unlikely to become a significant driver of GDP [gross 44 of GDP in the second quarter of this year, just half the long-term average and well below the 6.3 percent peak recorded at the end of 2005. The cumulative effect of the past five consecutive quarters of residential investment growth was a 0.2 percentage point rise in annualized GDP growth. Thus, while the housing sector may celebrate small victories such as rising sales and an increase in housing starts, the overall economy continues to struggle. national spike in foreclosure rescue SARs, one of which was increased awareness through reports, bulletins, and guidance from various government agencies. FinCEN also encouraged filers to use "foreclosure rescue scam" in the narrative portion of the report in its June 2010 advisory and explained the effort "facilitates the identification and isolation of pertinent SARs by FinCEN analysts and agencies with access to FinCEN's database." In addition, trends in the real estate market may have created opportunities for fraud as homeowners in distress seek relief. FinCEN also noted suspicious activity amounts in the second quarter ran much higher for foreclosure rescue SAR compared to general MLF SARs, with medians of $345,000 and $265,500, respectively.

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