Archive for the American Economy Category

Housing Still Hasn’t Hit Bottom

Posted in American Economy, Buying a Home, Foreclosures and Loan Modifications, Real Estate Prices on May 19, 2011 by David Griffith

BREAKOUT By Jeff Macke May 19, 2011

Housing bulls have wanted to get bullish ever since the bubble popped in 2008. They better grab a chair because it’s going to be a while, according to Richard Suttmeier. The chief market strategist of ValuEngine.com says home prices simply aren’t going to bottom no matter what the government or banks may do to push them higher.

Suttmeier, whose firm uses a blend of technical and fundamental analysis to drive its investment recommendations, offers some discouraging data for contrarian housing bulls. Housing prices haven’t just been “correcting” in the context of a recovery, observes Suttmeier. Housing actually never recovered in the first place. The economic truth of supply and demand is in play; during the bubble years we simply built way too many houses, and the glut isn’t going to be worked off anytime soon.

None of which is particularly new information for those paying attention to Federal Housing Finance Agency data or watching the S&P/ Case-Shiller Home Price Index approach the 2009 lows. What is of note are the investment conclusions Suttmeier reaches based on this and other observations. He says the bad mortgage problem still exists for regional banks in particular and that foreclosure rates would be much higher were it not for the fact that it’s often less expensive to allow people to stay in a home than it is to evict. After the federal bailout the regional banks are, in many cases, left holding the housing bag, stuck with massive inventory of homes that need to be sold off to a market with no demand.

By extension Suttmeier says companies such as Caterpillar (CAT), which has been on a torrid run of late, are poised for a fall. When my partner Matt Nesto observes that an enormous percentage of CAT’s revenues come from foreign sources, Suttmeier says emerging markets are following close behind the U.S. in the creation of a capacity glut. This echoes the observations of Vitaliy Katsenelson, who last week asserted that the Chinese government has resorted to building massive and unoccupied “ghost towns” in order to keep up the appearance of growth.

Suttmeier is also in the Breakout camp in keeping an eye on the recent drop in copper. He says the leading economic indicating metal dropped below its 200-day moving average on May 11 for the first time since July 2010. This is a warning, according to Suttmeier, that the global recovery is sputtering.

Before dismissing Suttmeier as a perma-bear, please note that he’s a truly agnostic strategist, simply following the lead of his proprietary screening methodology, which follows 5,500 stocks. When the fundamentals flash a warning sign, he plugs in the technical and other observations to arrive at his conclusions. This system has proven prescient in the past for Suttmeier’s clients, who were warned about bank stocks in 2007. This was early enough to be actionable, which is distinct from the countless number of bears who “saw the housing market bubble coming” well before such an observation made, or saved, them money.

Can’t Get a Mortgage Loan – Part II

Posted in American Economy, Buying a Home with tags , , , , , , , on April 19, 2011 by David Griffith

Fed unveils proposal on mortgage standards

REUTERS/George Frey

On Tuesday April 19, 2011

By Dave Clarke

WASHINGTON (Reuters) – Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday.

The rule, which is required by the Dodd-Frank financial reform law, is intended to tighten lending standards and combat home lending abuses that contributed to the 2007-2009 financial crisis.

The rule would establish minimum underwriting standards for most mortgages and lenders could be sued by the borrower if they do not take the proper steps to check a borrowers ability to repay the loan.

The law does provide protections from this type of liability if a loan meets the specific standards that are part of a “qualified mortgage.”

In its proposal, the Fed is seeking comment on two possible ways of defining a qualified mortgage.

Under the first scenario the loan could not include interest-only payments, a balloon payment and regular payments could not result in the principle of the loan increasing.

Under the alternative, the loan would have to meet all the standards laid out under the first option and meet additional requirements such as having the lender verify a borrower’s employment status and debt obligations.

The proposal lays out a general standard for complying with the rule, including verifying a borrowers income, their employment and the amount of debt they have.

Mortgage originators who serve rural and underserved areas would be allowed to give out loans with balloon payments.

“This option is meant to preserve access to credit for consumers located in rural or underserved areas where creditors may originate balloon loans to hedge against interest rate risk for loans held in portfolio,” the Fed said in a statement.

The Fed is seeking comments on the proposal through July 22.

The final rule will be implemented by the Consumer Financial Protection Bureau, which opens its doors on July 21.

Can’t Get a Mortgage Loan – Join the Party!

Posted in American Economy, Buying a Home, Mortgage Rates, Real Estate Prices on April 6, 2011 by David Griffith

David Griffith’s Note: Another unintended consequence of our financial crisis, which we can blame on the failure of government watchdogs and Wall Street greed, is that the pendulum has now swung back too far in the other direction, from easy credit to non-existent credit, and home buyers can’t get a loan, even with great credit and substantial cash in the bank.

Les Christie, April 6, 2011

Yep, mortgage interest rates are low, but there’s a catch: It doesn’t matter how cheap rates are if you can’t get a loan.

And these days, only highly qualified borrowers can get financing — let alone the best rates.

Nearly a quarter of people who apply for loans are turned down, according to the Federal Reserve.

“Good borrowers with one or two blemishes on their credit are being denied credit,” said Lawrence Yun, chief economist for the National Association of Realtors.

The denial rates tell only half the story. Many potential buyers aren’t even applying for loans because they assume they can’t get one.

“A lot of people know it’s very difficult to get a mortgage and they’re not even trying,” said Alan Rosenbaum, CEO of GuardHill Financial, a New York-based mortgage broker.

That shows up in credit scores for loans financed with backing from Fannie Mae and Freddie Mac. The average credit score has risen to 760 from 720 a few years ago. For FHA loans, the average score has gone to 700 from 660. Loans made to borrowers with sub-620 scores are almost nonexistent.

Another factor keeping people out of the mortgage market is that lenders now require much more up-front cash. The median down payment for purchase is about 15%. During the housing boom, it approached zero.

On most loans, banks want 20% down. On $200,000 purchases, that’s $40,000, an insurmountable obstacle for many young house hunters. Or, in New York City, where the median home price is $800,000, buyers need $160,000 up front.

Industry insiders say all these factors have reduced the pool of buyers, lowering demand for homes and hurting prices.

“We feel it really reduces the demand for houses,” said Mike D’Alonzo, president of the National Association of Mortgage Brokers. “It’s an unbelievable buyer’s market, but there hasn’t been as much activity as you would expect because not as many people qualify for loans.”

Jerry Howard, CEO of the National Association of Home Builders said, “You only have to look at the recent sales reports to see what the impact of the credit crunch has had. The statistics speak for themselves.”

Sales of existing homes in February, despite very affordable prices, were 30% off their peak, and home prices fell for the sixth consecutive month in January.

Anthony Sanders, director of Real Estate Entrepreneurship at George Mason University, speculates the tougher credit standards may have stripped as much as 30% of the buyers off the market, compared with normal times.

And it’s about to get harder for buyers. Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending.

Banks would be required to keep 5% of some loans, specifically those with less than 20% down payments, on their books rather than selling them all off as securities. As a result, banks make be unlikely to issue loans where less than 20% is put down. So much for first-time buyers.

“We think the new rules are appalling,” said the NAHB’s Howard. “Only the wealthy will be able to buy homes at low interest cost.”

It could also further erode consumer demand for homes.

“It’s disturbing,” said Lennox Scott, head of John LA. Scott Real estate in the Pacific Northwest. “We’re just starting to feel healthier in inventory levels and prices and this is a potential headwind.”

The immediate impact, should the new regulations get adopted, should be minor, according to Steve O’Connor, spokesman for the Mortgage Bankers Association. That’s because Fannie, Freddie and FHA loans are all exempt from the requirements and they represent more than 90% of the market right now.

The government, however, wants to reduce the presence of all three agencies in favor of private lenders, and banking experts fears the long-term impact of abandoning the field to mostly private companies.

“For the first time in 100 years,” said Howard, “the government is discouraging you. It’s saying ‘We intend to make it more difficult for you and your kids to buy homes.'”

Housing – Time to Buy?

Posted in American Economy, Buying a Home, Real Estate Prices with tags , , , , , , , on March 31, 2011 by David Griffith

What It Will Take to Fix the Housing Market

Rick Newman, On Wednesday March 30, 2011

If you’re a squeamish homeowner, you probably can’t bear to follow the housing news anymore. Home prices have fallen by more than 30 percent over the last five years, yet the pain still isn’t over: After a respite when it looked like the bust was ending, price declines have been accelerating once again. Sales are abysmal, despite the lowest interest rates in a generation. The inventory of foreclosures and other fire-sale homes is going up, not down, which will put further downward pressure on prices for much of 2011. Housing usually rebounds after a recession, giving the recovery legs. But the housing market is so bad that some analysts worry it could drag the whole economy back down into a dreaded double-dip recession.

Economists have continually misread the housing market over the last five years, as it metastasized from a modest correction into a once-a-century debacle. Part of the problem now is the uncertainty caused by rising gas prices, which tend to unnerve consumers far more than the added cost warrants, and the nationwide slowdown in foreclosures due to legal questions over fishy bank practices. There’s also a lot of disquiet over unrest in the Middle East, ongoing sovereign debt problems in Europe, and Washington’s own mushrooming debt problems. It doesn’t help that there’s talk of ending some housing subsidies, making it harder to qualify for a 30-year mortgage and even slashing the mortgage-interest deduction that makes homeownership cheaper for millions of middle-class families.

Still, the recovery has absorbed a couple of global shocks, and apparently continues apace. The job market is improving, shoppers are more willing to spend, and corporate profits remain strong. Those are all preconditions for a housing rebound, which is inevitable as long as the nation’s population continues to expand and the economy keeps growing. The only question–and it’s a big one–is when. Here are six missing pieces that still need to fall into place for a housing rebound to take root:

More job gains. The employment picture has been improving for over a year, with the economy adding nearly 1.3 million jobs since the low point in February 2010. That’s a start, but the pace of job growth needs to be about twice that to generate a self-sustaining recovery in which consumers spend more because they’re confident about their jobs, and companies hire more because they need the extra workers to meet growing demand. And we’re not quite at that point yet. While private-sector firms have been hiring, state and local governments have been slashing jobs, slowing overall job gains. That’s likely to continue. And the twin shocks of Middle East unrest and the damage from the Japanese earthquake have added fresh doubts about the sustainability of a global recovery. So it will still take a major ramp-up in private hiring to make the recovery look lasting.

The unemployment rate has been a key indicator of the economy’s health, but even that has become a bit suspect. Since last November, the unemployment rate has dropped sharply, from 9.8 percent to 8.9 percent. That seemingly reflects a dramatic improvement in the job market. But that has happened as the number of people looking for jobs has fallen, too. So in effect, America’s labor force is shrinking at a time when it ought to be growing. Meanwhile, the economy is still down about 7 million jobs from peak levels before the recession, which has hollowed out the pool of potential home buyers. Some of those people need to get back to work before the demand for housing improves.

Outlook: Moody’s Analytics predicts that the pace of job creation by the end of 2011 will be at least 2.5 million new jobs per year, more than twice the current rate. If that holds, it will boost confidence and bring many needed home buyers back into the market.

Fewer foreclosures. It’s impossible to hold the line on retail prices when distressed merchandise keeps hitting the market, and that’s been the problem with an endless stream of foreclosures in hard-hit states like California, Nevada, Arizona, Utah, Michigan, Georgia, Mississippi, and Florida. As foreclosed homes get repossessed and resold, they drag down the prices of most other homes, which perpetuates the vicious cycle of holdout sellers who can’t afford to take a loss and reluctant buyers who don’t want to commit to purchase until they’re sure prices are nearly done falling.

Outlook: The number of delinquent mortgages has been declining, which means foreclosure rates should slow, as long as the job market continues to improve and the economy doesn’t slide back into recession. But there’s an enormous inventory of foreclosed or soon-to-be-foreclosed homes that will depress prices in many markets for months or years. The good news is that 15 to 20 states, mostly in the Northeast and Midwest, have modest foreclosure rates and are better-poised for a housing recovery. It will also help once the state regulators who are dickering with banks over “robosigners” and other fishy foreclosure practices reach some kind of global settlement that will allow normal foreclosures to proceed. News reports suggest a settlement could come within weeks, which would ease delays that have dragged out the whole foreclosure fiasco.

A stable homeownership rate. Until the last decade, the homeownership rate was mostly steady at around 64 percent. Then it rose to a peak of 69 percent in 2004, which was obviously too high. As people who can’t afford homes sell or default, the homeownership rate has been drifting back down, and it’s now around 67 percent. It probably needs to fall back to the historical average of 64 percent or so for the housing market to return to normal.

Outlook: At the current pace, homeownership rates could hit 64 percent again in 2012 or 2013, but there’s a risk they’ll overshoot and go lower than that–which would stretch the huge gap that already exists between the supply of homes and demand. The good news is that housing affordability is the best it’s been in more than 40 years, and banks are starting to ease up on loans, which could lure buyers back sooner.

Clarity from Washington. Buying a home is a complicated ordeal to start with, and now, home buyers also need to worry about battles in Washington over tax policy, housing subsidies, and the entire future of housing finance. Some budget hawks want to reduce the mortgage-interest deduction, to help cut Washington’s huge deficits, which would probably affect purchases of more expensive homes the most. Other proposed changes could effectively require higher down payments and shorter-term mortgages, which would shrink the pool of eligible buyers. And something needs to be done about Fannie Mae and Freddie Mac, the wrecked housing agencies that are now completely run by Washington, at a huge loss to taxpayers. But if changes are too abrupt, it could cause another ruinous pullback in housing.

Outlook: For all the intense talk in Washington, the biggest issues, such as what to do about Fannie and Freddie, probably won’t be addressed until after the 2012 presidential election. And if there ever is a cut in the mortgage-interest deduction, it will probably be phased in slowly, to minimize voter revolt. The biggest risk for buyers today isn’t an abrupt change in housing policy. It’s not leaving enough margin for error in case there’s an unexpected pullback in the future. That’s one more reason to make conservative decisions and leave a lot of cushion in case something goes wrong.

Rising rents. Fewer homeowners means there are more renters, which drive the demand for apartments up, along with rents. That’s a hardship for renters, since it cuts into their disposable income. But it also gives them a good reason to consider buying. With the affordability of homes at record levels, that should eventually turn some renters into buyers, raising demand for homes and helping stabilize prices.

Outlook: Rents have already started going up, and research firm REIS predicts a healthy 3.4 percent rise in rents, on average, in 2011. In a few cities, rents could rise by nearly 10 percent. And in most cities, rents will outpace inflation and wage growth. That won’t turn renters into buyers overnight, since loans are still hard to get and a lot of people can’t come up with money for a down payment. But it will help restore the normal equilibrium between the rental and purchase markets, and increasingly motivate renters to look into buying.

Some courageous buyers. The conventional wisdom at the moment is that the housing bust still has a ways to go, which means it would be foolish to buy until it’s clear that prices have stopped falling. But smart money rarely follows conventional wisdom, and there are good reasons to buy, even now. Getting a good deal on a home is a function of two things: price and interest rates. Prices may fall a bit further, but it’s very likely that interest rates will go up over the next several months, as the global recovery picks up steam and investors begin to anticipate the end of the Federal Reserve’s super-stimulative policies. So in terms of mortgage rates at least, the bottom may be now.

Outlook. “Housing markets across the country are increasingly a good buy,” economist Mark Zandi of Moody’s Analytics said in a recent conference call. “They’re undervalued.” In fact, he predicts that the best buys may be in the most distressed areas, where prices have fallen the most. It might take guts to act on that, and muster a down payment while other buyers are still on the sidelines. But sooner or later, predictions of a housing recovery will turn out to be right.

How Global Events Affect Your Ability to Buy a Home

Posted in American Economy, Buying a Home, Doing Business in California, Mortgage Rates, Real Estate Prices on March 4, 2011 by David Griffith

Today we live in a global economy, an interconnected world where goods and capital move freely at lightning speed across countries. The widely accepted view is that globalization not only benefits all countries across the world but lends itself towards the betterment of the economy as a whole.

As we have seen, globalization can also have a negative impact with a domino effect in times of turmoil and unrest. This impact affects the financial markets both in the U.S. and abroad.

Flight to Safety When there is political unrest, which was sparked recently in Egypt and has spread like wildfire throughout the Middle East, global investors get nervous. Often they shed their risky assets like Stocks and flee to the safe haven of the U.S. Dollar and U.S. Bond market.

This geopolitical unrest can create a buying binge, which helps Bond prices improve. And when Bond prices improve, so do home loan rates. However, there are growing concerns that trump the disturbing news coming from the Middle East, which will be the guiding force of home loan rates in the times ahead. What might that be?

Inflation, Inflation, Inflation Inflation is the arch enemy of Bonds and home loan rates, even if inflation is across the pond. The increase in global unrest, not just in Egypt but in other parts of the world as well, is mostly attributed to economic factors – primarily runaway inflation in commodities and food.

The People’s Bank of China has raised interest rates a couple of times, most recently by 0.25% in an effort to head off a continued rise in consumer prices in China. The culprits? Soaring food prices and higher raw material costs lead the pack.

China has also tightened lending standards by requiring banks to raise their capital reserve requirements. In their latest reporting, China’s inflation rose by 4.9% year over year. This was lower than their expectations, however it still marked their highest reading in a couple of years. China may have to tighten their belt some more.

Brazil is appearing on the scene with the hottest rates of inflation in six years. They are attributing this to a rise in food costs and increased bus fares. It is anticipated the Central Bank will raise the benchmark interest rate in March for a second straight time in an effort to contain the spike in inflation.

The British are grappling with inflation as well. Their year over year reading struck a hot 4%, which is twice the rate of the Central Bank’s target. The UK has yet to address this with rate hikes because their economy is in such bad shape that any hike would make matters worse.

Inflation is beginning to become a problem in Europe where it has risen to 2.4%. This is super hot and well above the European Central Bank‘s (ECB) comfort zone of beneath 2%.

With an inflation problem in Europe, the ECB will eventually have to raise rates to fight it. When they do, the Euro will strengthen against the dollar, making European Bonds relatively more attractive than U.S. BondsThis attraction will likely put a damper on U.S. Bond purchases, and could also cause home loan rates to rise.

Many of these countries within Europe have a high number of union workers. They could very well demand pay increases to offset the higher cost of living resulting from inflation. This would exacerbate matters.

As we see signs of inflation around the world, the U.S. isn’t immune. With the second round of Quantitative Easing, known as QE2, the Federal Reserve’s stated goal is to boost Stock prices, create inflation, and lower the unemployment rate. These are all unfriendly to Bonds and could also cause home loan rates to move higher. As the old trading saying goes, “Don’t Fight the Fed.” It’s a bit like the Golden Rule, “He with the gold, rules.” If the Fed wants to accomplish these goals at the expense of Bonds, they probably will.

Some Good News Despite inflation rising around the world, the global economy will continue to recover and growth will continue to expand. Consumer confidence has picked up, hitting the highest level since February 2008. With continued confidence as the economy picks up speed, housing may begin to show signs of improvement as well.

 

 

No Commercial Real Estate Meltdown?

Posted in American Economy, Real Estate Prices on February 11, 2011 by David Griffith

The Real Estate Washout That Wasn’t

Brian Louis and David M. Levitt, On Friday February 11, 2011

From Manhattan office towers to Florida apartment buildings to retail properties in Washington, commercial real estate values are rising, defying predictions made as recently as February 2010 of a collapse that would drag the U.S. economy back into recession. Prices of commercial properties sold by institutional investors surged 19 percent in 2010, the second-biggest gain on record, according to an index developed by the MIT Center for Real Estate.

Near-record-low interest rates mean buyers can get cheap financing, which improves their returns. At the same time, rising earnings give banks a cushion to absorb losses, enabling them to sell distressed properties rather than hang on to them. Investors, convinced the worst is over, have pushed prices on bonds backed by commercial mortgages to the highest level in two years. Says Dan Fasulo, managing director at New York-based Real Capital Analytics: “Now that values are on the upswing, it’s given owners and lenders more wiggle room to work out these troubled situations.”

Those taking advantage of improving conditions include Vornado Realty Trust (vno.), which in December resolved a standoff with its lender by paying $115 million to buy the $171.5 million loan on its Springfield Mall in a Virginia suburb of Washington. The loan had been transferred to a special servicer a year earlier because the New York-based real estate investment trust was in danger of “imminent default” on the property, according to Fitch Ratings.

In downtown Fort Lauderdale, a market damaged by declining home values, USAA Real Estate bought Las Olas Centre, a 469,000-square-foot office complex that had been seized by lender Wells Fargo (wfc.). USAA Real Estate, based in San Antonio, paid $170 million in September; the previous owner spent $231 million near the top of the market in July 2007, according to Real Capital.

In February 2010, the Congressional Oversight Panel of the Troubled Asset Relief Program warned that a deteriorating commercial real estate market had the potential to wreck the U.S. economy. It estimated that almost half the $1.4 trillion in commercial property loans set to be paid off by 2014 were underwater, meaning the borrower owed more than the property was worth. Unless refinanced, the debt “could threaten America‘s already weakened financial system,” the panel said in a report.

New York, Washington, and Boston are among the cities leading the recovery as employment growth and large inventories of properties with a lot of rent-paying tenants attract investors.

Market segments including hotels, apartments, and retail are also on the rise. A hotel rebound started last year, with the average occupancy rate in the top 25 U.S. markets rising to 64 percent from 60 percent in 2009, according to Smith Travel Research in Hendersonville, Tenn. Sales of apartment buildings nationwide rose in the fourth quarter as homeownership remained at a 10-year low and demand for rentals pushed lease rates to the highest in four years, according to Axiometrics, a Dallas-based research company. Of the $52 billion of retail properties to fall into default, just over half have completed workouts, “giving the retail sector the distinction as the first property type to pass the halfway point in resolving its distress,” Real Capital analysts wrote in a January report.

“That tsunami of distress that had been forecast has not really materialized,” says Brian Stoffers, co-president of CBRE Capital Markets, a financing and investment sales division of Los Angeles-based broker CB Richard Ellis Group. “The market’s getting stronger.”

The bottom line: More than half of defaulted properties have completed workouts, helping to prevent disaster in the commercial real estate market.

US Financial Meltdown Was ‘Avoidable’

Posted in American Economy on January 26, 2011 by David Griffith

 NY TIMES – SEWELL CHAN, On Wednesday January 26, 2011

WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”

While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings.

Many of the conclusions have been widely described, but the synthesis of interviews, documents and testimony, along with its government imprimatur, give the report — to be released on Thursday as a 576-page book — a conclusive sweep and authority.

The commission held 19 days of hearings and interviews with more than 700 witnesses; it has pledged to release a trove of transcripts and other raw material online.

Of the 10 commission members, the six appointed by Democrats endorsed the final report. Three Republican members have prepared a dissent focusing on a narrower set of causes; a fourth Republican, Peter J. Wallison, has his own dissent, calling policies to promote homeownership the major culprit. The panel was hobbled repeatedly by internal divisions and staff turnover.

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly, it turned out — that the subprime collapse would be contained, the report notes.

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”

Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury secretary, was not unscathed; the report finds that the New York Fed missed signs of trouble at Citigroup and Lehman, though it did not have the main responsibility for overseeing them.

Former and current officials named in the report, as well as financial institutions, declined Tuesday to comment before the report was released.

The report could reignite debate over the influence of Wall Street; it says regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.

The report does knock down — at least partly — several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.

On the other hand, the report is harsh on regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion potential losses and halt risky practices, and that the Fed “neglected its mission.”

It says the Office of the Comptroller of the Currency, which regulates some banks, and the Office of Thrift Supervision, which oversees savings and loans, blocked states from curbing abuses because they were “caught up in turf wars.”

“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” the report states. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”

The report’s implications may be felt more in the political realm than in public policy. The Dodd-Frank law overhauling the regulation of Wall Street, signed in July, took as its premise the same regulatory deficiencies cited by the commission. But the report is sure to be a factor in the debate over the future of Fannie and Freddie, which have been run by the government since 2008.

Though the report documents questionable practices by mortgage lenders and careless betting by banks, one striking finding is its portrayal of incompetence.

It quotes Citigroup executives conceding that they paid little attention to mortgage-related risks. Executives at the American International Group were found to have been blind to its $79 billion exposure to credit-default swaps, a kind of insurance that was sold to investors seeking protection against a drop in the value of securities backed by home loans. At Merrill Lynch, managers were surprised when seemingly secure mortgage investments suddenly suffered huge losses.

By one measure, for about every $40 in assets, the nation’s five largest investment banks had only $1 in capital to cover losses, meaning that a 3 percent drop in asset values could have wiped out the firm. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant “shadow banking system” in which the banks relied heavily on short-term debt.

“When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost,” the report found. “What resulted was panic. We had reaped what we had sown.”

The report, which was heavily shaped by the commission’s chairman, Phil Angelides, is dotted with literary flourishes. It calls credit-rating agencies “cogs in the wheel of financial destruction.” Paraphrasing Shakespeare’s “Julius Caesar,” it states, “The fault lies not in the stars, but in us.”

Of the banks that bought, created, packaged and sold trillions of dollars in mortgage-related securities, it says: “Like Icarus, they never feared flying ever closer to the sun.”