03/06/2009 05:12 am ET Updated May 25, 2011

Bits and Pieces

There is so much going on these days that I am touching on a couple of topics today, with follow-up and elaboration in upcoming e-letters.

Will the McMansion become a dinosaur? The National Association of Homebuilders reports that after years of growth, new home sizes are shrinking. This is a reflection of what home buyers want today. Some believe that large houses (say anything over 6,000 sf ) especially when oversized to a lot, are going to be hard to sell in the years ahead.

Is there another "subprime" crisis around the bend? It appears that Option ARMS could be the next shoe to drop in the housing and mortgage world. These products allowed a borrower to pick the size of his monthly mortgage payment. In many cases the payment was less than what was "owed" (what the loan rate required), and the result was negative amortization, i.e. the mortgage got bigger instead of smaller.

The Option ARM loan portfolio, $750 billion issued between 2004 - 2007, is not as large as subprime ($1.9 trillion in the same period). But, we certainly don't need more problems and, as of December, 2008, 28% of Option ARMS were delinquent or in foreclosure. If home prices continue to fall, this number will spike upward and banks could incur tens of billions of dollars of additional losses.

Store Closings.
Last week both Starbucks and Home Depot announced store closings. Starbucks is closing 300 more stores (in addition to the 600 it closed last year) and Home Depot is closing 34 stores (in addition to the 15 it closed last year). Just five years ago, any real estate owner or developer would move mountains to make a Starbucks or Depot deal, the presumption being they were long-term annuities.

Barney Frank. Last week the Wall Street Journal reported that Congressman Barney Frank, Chairman of the House Financial Services Committee, admitted to pushing the Treasury Department to use $12 million of TARP bailout money to help a bank in his district. In October, 2008 this bank had been slapped with a cease-and-desist order by the FDIC alleging poor lending practices and executive-compensation abuses, including maintaining a Porsche for management to use.

Guys like Frank need to be beyond reproach. He is an aggressive interrogator when his committee subpoenas executives from the business world. He has complained about the Treasury Department not putting restrictions on the recipients of TARP money. How can he then push to help a local bank (his constituents) which was most likely not a candidate for taxpayer moneys? This stuff feels like the height of hypocrisy to me.

Jim Randel is the author of the stick people books (tm) series and is about to release his latest book, The Skinny on Credit Cards: How to Win the Credit Card Game (Clover Leaf, 2009).