Maria Bartiromo flew out to LA to speak with Angelo Mozilo and CNBC ran a live interview at 11 AM this morning.

Mozilo essentially said that Countrywide is fine, that the company does not face a bankruptcy risk any greater than six months ago, and that the Merrill analyst was "irresponsible" to mention the possibility of bankruptcy. I actually concur with the last point, especially since the analyst mentioned bankruptcy 2 days after saying that the company had no such risk. I am not so sure about Mozilo's other claims and believe that he recognizes that the situation is an especially severe one. He acknowledged that the Bank of America deal announced last night is not a good one for Countrywide - he sold an 'in the money" option on 17% of his company that yields 7.25% for the purchaser until exercised for only $2 billion. That, in fact, smells to me of desperation as Countrywide couldn't get better terms from any other money center bank (Mozilo said that all the other banks told him that they couldn't consider a deal because they have their own mortgage exposure problems).

It is what Mozilo said next that really smelled of hypocracy. Mozilo said he sees a housing-induced recession in the offing over the next year. Somehow, while Countrywide is the largest mortgage lender and is going to be fine, we are going to have a housing-induced recession!

I don't profess to have a clue at this point which way the economy is going tomorrow or the day after tomorrow much less in three or six months. This volatility has made economic judgments very, very certain. The economy may shake this off and return to expansion in September, leading the stock market much higher. However, this economy was strong until four weeks ago, and if housing is going to cause it to unwind and in fact fall into a recession, then this housing / mortgage situation is still in the second inning and the $2 billion that Angelo just got from B of A isn't going to save his business.

Bank of America will begin to offer certain mortgage holders a "earned principal forgiveness" program whereby up to 30 percent of their mortgage balance will be foregiven in two stages. Provided the homeowner stays current on their payments over five years, the foregiveness plan is designed to bring the loan value down to 100 percent of the home's value at that time.

I am somewhat torn by news of this plan.

As a responsible homeowner who purchased a home that they could afford in 2007 (not one three times more expensive and larger than they could not afford even though it would have been possible), I do not think that the plan engenders or rewards financial responsibility; rather it continues the precedent in the US that you can take whatever loan amounts are offered to you and not be responsible for repayment. At the same time, it is pleasing to see the largest US mortgage lender become the first to take a systematic approach to reducing mortgage principal and to preventing foreclosures, instead of leaving this difficult issue to the government to handle.

Back at the height of the real-estate boom in 2004-2005, I used to count the columns of homes for sale in the local newspaper. It provided me with a way to see how much was on the market in my town. There were always between 6-9 columns, usually 9 when the market was a bit slower.

I hadn't done it for awhile and finally took out the Sunday paper and gave it a count today. I expected to find more listings and more columns. Imagine how shocked I was when there were only 3 ½ columns. Where were all of the homes? I thought unsold inventory was climbing rapidly.

I'm still a bit surprised but I offer several possible theories:

• Sellers have taken their properties off the market instead of selling at below their asking price.
• Rates have gone up and most people are content to stay in their homes which they purchased or refinanced at a low rate.
• The housing slowdown is not as bad as the press is making it out to be.
• I live in the Northeast in a dense area and maybe this is not representative.

Of course, this is just one data point. Anyone else have any thoughts?

The National Association of Realtors reported today that home prices dropped by 1.5% from a year ago although sales dropped by 10.8% compared to the second quarter of last year. In addition, the report showed that many markets saw price appreciations instead of drops. Salt Lake City saw a price appreciation of 21.9%.

To me, the data seems to show a spotty housing market with some overbuilt areas feeling the pain while other areas seem to be doing fine. In general, I feel that as long as the job market stays robust then the housing market will avoid a major collapse. Housing is one of the last things someone wants to lose. Although the increases in ARMs will cause some pain an overall healthy economy should keep the market fairly stable.

If the economy slips into recession or the unemployment rate increases though, all bets are off.

The commerce department just reported the latest housing start information and its worse than analysts expectd. Starts of new homes fell by 2.6% to a seasonally adjusted annual rate of 1.331 million while authorized building permits fell by 5.9% to a seasonlly adjusted rate of 1.307 million. Bothnumbers are the lowest since 1995.

While month by month data is often volatile and should be taken with a grain of salt, housing starts have shown a decline over a period of time. For the last six months, annualized starts were 1.42 million down from 1.45 million in the five months through July.

In addition, the National Association of Home Builders reported yesterday that builders are the most pessimistic they have been in the last 22 years.

The National Association of Realtors reported today that sales of existing homes in August fell to a 5 year low. Purchases declined 4.3 percent, less than forecast, to an annual rate of 5.5 million. Sales dropped 13 percent compared with a year earlier and median home prices rose 0.2 percent to $224,500.

Of course, this contradicts data from the Case-Schiller index which shows home prices falling by several percentage points in July. It's hard to imagine this decline reversed in August.

Either way, it seems clear that real estate is coming down as it had to. Prices were simply too high.

I've noticed that when many people buy a home they make an assumption that their costs are now fixed. They no longer have to worry about rising rents since many of them have fixed mortgages. What they fail to realize is that there are other property costs that inexorably rise, like taxes, insurance, and maintenance.

Lately, after conversations with several neighbors and acquantices, I can see how these costs may push many into foreclosure. The threat may even be greater than adjustable rate morgages resetting since rising taxes hit everyone, regardless of their mortgage situation.

Despite the fact that property values have declined over the last two years, property taxes continue to increase. On my street, the average house and condo has seen its bill increase by between 30-35% per year. Since the average tax bill is between $4-5,000 that's an increase of between $1,200-$1,700 per year. On a monthly basis its over $100 per month just in increased taxes, none of which is tax deductible.

One woman I know purchased a new condo that had recently been renovated. When she purchased it, the listing sheet showed the old assessed price and the old taxes. After she moved in, the condo was reassessed and because it had been thoroughly renovated, her taxes doubled. She purchased the unit with one set of financial expectations and must now confront a very different set.

I know of another couple that purchased an expensive condo at the top of the market. They are now underwater and have an expensive mortgage to pay. On top of that they recently received an assessment for 15% of the value of the condo. They both have good jobs and are successful, but they aren't sure where they are going to get the money to pay the fee. To them, the once unthinkable thought of foreclosure has become a potential reality.

I've been a bit skeptical about the gloom and doom scenario painted the by the pundits regarding real estate. I think generally most people are going to be okay. But there are certainly pockets of real pain. The gravy train is over and its clear that in a sinking market, there is little to no margin for error.