Housing Doom

It has been awhile since we've dug into the Las Vegas home sale numbers.  Of note this month is that the most interesting number is not a sale statistic at all- it's the number of single family homes that have rented.

The Greater Las Vegas Association of Realtors (GLVAR) has only been tracking the number of homes leased since 2006.  In January 2006, 1113 homes were rented. [This number only includes homes leased through the MLS.] That number has steadily increased.  In February 2010, a record 2102 homes were leased:

Note the difference in trend between the number of homes rented and the number of homes sold.  2390 homes sold in February, up slightly YOY from last year's 2288, but dropping from January's 2608, an unusual trend for this time of year:

Could it be that the thrill of homeownership is cooling off, or are fewer potential buyers qualifying?  It might be a combination of both.  With more homeowners walking away, people might be thinking twice about walking toward homeownership.

While sales have been headed down, listings are moving up.  Only 19,707 homes were listed for sale in December, a level not seen since February 2007.  However, listings have risen for the past two months.  There were 22,142 homes listed at the end of February.  Consequently the 5.8 months supply that we saw in December has increased markedly to a 9.3 months supply in February.

So where are home prices?  February's $135,694 is down 12.8% YOY, and 56.9% off of the June 2006 peak of $315,000.

So where are home prices headed?  Long time Doom nemesis Larry Murphy said last month: Read the rest of this entry »

The recourse to defaulting mortgage borrowers. [slide 12] I think we … and I was brought up to date of some recent changes in Alberta that make it even more uniform across Canada. In this country roughly half the States allow recourse, half bar it, but even in the States where recourse is allowed, it doesn't seem to be pursued very often. And I think we've seen in some of the European countries, and Denmark is one that comes to mind, one of the strengths of the Danish system is, not just recourse, but aggressive pursuit of delinquent borrowers. // And that's what's key. It's not just having recourse, but it's making sure you go after them. And I think to some extent this reflects maybe one cultural difference between Canada and the US. And it is that Canada, at least in terms of housing finance, seems to have more of a creditor orientation whereas the US, given its populist history has long had a much more of a bias towards and tilt towards debtors. And I think where you see this particularly is with regard to recourse. – Bert Ely, a couple of paragraphs below the 1:15:00 point of Sub VI Hotel

When the bubble at The World burst last fall, Europeans fled for their lives, famously leaving the keys right in their luxury cars at the airport parking lot.  Could a similar situation be unfolding in slow motion in the American south-west?

It was lucky I spent yesterday finishing up Bert Ely's presentation from Sub VI Hotel, because today twist's old friend Hubble Smith from the LV Review-Journal is lead author on a must read article on strategic default trends in Nevada.  NV's a recourse State, but CA isn't.  Are former Californians going to have to flee back down Route 15 to escape the consequences of their failed flips?  And would those NV judgments be enforceable in CA, creating back-door recourse?  The gang at AEI is pretty hot on federally imposed standards for recourse and they're talking NV standards, not CA.

LV R-J: "Underwater homeowners leave behind mortgages, but lenders can still come calling: Moral, social variables play role in predicting defaults"

A subsidiary of Goldman Sachs Group filed more than 50 lawsuits against Las Vegas homeowners in one month last year. Some experts say the litigation could signal the beginning of a Wall Street backlash against defaulting borrowers.

[bankruptcy attorney Philip] Goldstein expects short-sellers to face a flood of collection actions in the coming few years. Second-mortgage lenders, especially, are aggressively pursuing borrowers.

It's said you have to kiss a lot of frogs to find your handsome prince. Researching on the web is the same. You have to read a lot of drivel to learn anything of worth.

Because I do wade through so much drivel in the course of a day, something has to be pretty awful for me to take note of it.  This "exceptional" piece however, caught my eye. I challenge anyone to figure out the thesis of Tiger Woods Practices in Isleworth FL, Nation's 2nd Worst Housing Market:

The recently scandalous Tiger Woods has finally picked his golf clubs back up. The golfer returned to the playing fields in Florida, in a neighborhood called Isleworth, a luxury golf community outside of his Orlando home. Not a coincidence, the golf course is headed by golf legend Arnold Palmer, who is also hosting Woods' first possible return championship, the Arnold Palmer Invitational.

Tiger took a break from the golf world after his personal life became top news last November. Golfing took a hit because Woods always drew in high revenue and attention, but his absence allowed other golfers to get a taste of victory.

"At this point, we still don't know," stated Scott Wellington to the associated press. "He has until next Friday to commit. But it was a busy day, for sure. We had a lot of calls, a lot of interest and we sold some tickets. It was interesting."

Florida was hit almost as hard as California when the housing market crashed. As of February, Florida had the second highest foreclosure rate in the nation with 54,032 houses under foreclosure. The 2009 fourth quarter negative equity estimates ranged around 47.8 percent of all present mortgages.

Isleworth, is in Orange County, which has faired better than others in Florida, but Orange County is still in sixth place in the state for highest foreclosure numbers. Isleworth represents true Floridian luxury. Membership of the country club is by invitation only. Looks like they haven't rescinded Woods' membership like some of his advertisers have.

My theory is that the original article was only supposed to be about Woods possible return to golf, but some editor said the article wasn't long enough.  The reporter was told to add two more paragraphs. With no more information on Woods available, she wrote about the location- and its foreclosure rate. The information lengthened the article, but left her with no discernible thesis. Read the rest of this entry »

Bank of America has done it again.  They have foreclosed on a homeowner that wasn't in default- and this time they kidnapped the parrot:

A Hampton woman is suing Bank of America, saying one of its contractors wrongly repossessed her home, padlocked the doors, shut off the utilities, damaged the furniture and confiscated a pet parrot, though her mortgage payments were on time.

Angela M. Iannelli, 46, suffered "severe emotional distress, embarrassment and ridicule" as a result of the company's "de facto foreclosure process and seizure proceedings," attorney Michael Rosenzweig wrote in the suit, filed Monday in Allegheny County Common Pleas Court.

The suit accuses Bank of America and its contractor, Ebensburg-based Snyder Property Services, of trespass, unfair business practices, defamation, libel and other offenses during the October foreclosure of Ms. Iannelli's home in the 5000 block of Fountainwood Drive. She is seeking an unspecified amount in compensatory and punitive damages.

Bank of America instructed Snyder Property Services to "enter, seize, padlock, 'winterize' and take possession" of Ms. Iannelli's house, the lawsuit said, cutting water lines and electrical wiring, pouring anti-freeze down her drains and "stealing" her pet parrot, Luke.

She returned home to find her locks had been changed, her furniture and carpets had been damaged, her belongings had been scattered and the bird missing. A notice on her door told her to contact Bank of America, which "initially falsely denied responsibility or knowledge of the invasion and refused" to help her, the suit said. The bank also acknowledged they knew the parrot's whereabouts, it said.

In further calls, Bank of America representatives told Ms. Iannelli they couldn't help her, told her to stop calling, said they were "tired of hearing from her" and put her on hold, told her to call back later and hung up on her, the suit said.

About a week later, Bank of America told her it had "made a mistake" and told her where she could find her parrot, but said she would have to travel to Ebensburg to retrieve it.

She eventually drove to Ebensburg to get her parrot back.

Mr. Rosenzweig said that, with the exception of one payment, Ms. Iannelli's mortgage payments had been on time. Bank of America had not sent her a notice of a 60-day deficiency nor given her 30 days to fix it, as state law requires, he said.

Read the rest of this entry »

So what happens when government steps in to revitalize neighborhoods and make more people homeowners? Sometimes neighborhoods are hurt and homeowners go into foreclosure. Example number one is from Buffalo, NY where the city decided to subsidize new homes:

"Foreclosures weakened the effort, but overall, not all the housing that was put up was well thought out," said Michael K. Clarke, head of the Buffalo office for Local Initiatives Support Corp., a nonprofit agency that promotes community development. "There was insufficient coordination with the need for rental housing, and not enough emphasis on target areas that might demonstrate a more stable return. You can't sell new homes next to vacant ones, or sell houses to people who only qualify for financing by the skin of their teeth, and expect to have much success."

 

"We played musical houses with the housing in Buffalo," added Joseph E. Ryan, the former strategic planning director under former Mayor Anthony M. Masiello. "We have more houses than we need. People are coming from existing neighborhoods. It's not like they've been coming from out of town. It helps to destabilize neighborhoods."

It's not only communities that are hurt, but the taxpayers that end up paying for these mistakes: [Thanks John!]

Home ownership in the United States ranks up there with motherhood and apple pie. The government has championed it for decades through tax breaks, mortgage guarantees and, most recently, the herculean task of keeping Americans in their homes after the housing market collapse. But government subsidies of the American Dream also have a darker side: when things head south, taxpayers end up stuck with the costs.

The government-run mortgage finance agencies Fannie Mae and Freddie Mac owned more than 131,000 properties between them at the end of 2009, according to recent annual filings. That’s roughly the equivalent of San Francisco’s owner-occupied housing stock. The two companies sold off nearly 200,000 units last year that they took over after owners defaulted. But despite those efforts, Fannie and Freddie owned substantially more units at the end of 2009 than they did a year earlier.

And things are set to get worse. Barclays Capital estimates the pipeline of severely troubled loans at around five million across the United States. Modification programs, which should help some borrowers stay in their homes, have also delayed the inevitable forfeiture of many others.

Fannie and Freddie end up owning properties because they provided guarantees for the benefit of mortgage investors. Between them, they back around $5 trillion of American home loans. Such support — once implicitly and now explicitly backstopped by the Treasury — has handed borrowers relatively low financing costs for years.

Now, though, the result is that aside from the huge financial burden they place on taxpayers, the two companies have been amassing foreclosed properties and, in a few cases, have become landlords.

But the Treasury wants to intervene in the effects of all this intervention:

Today we are providing a program update, including additional details on Foreclosure Alternatives and Home Price Decline Protection Incentives. Foreclosure Alternatives will help to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu of foreclosure in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. This program will assist homeowners who cannot afford to stay in their homes by helping them to avoid foreclosure and relocate to a home they can afford. Building on insights developed by the FDIC, Home Price Decline Protection Incentives will provide additional payments based on recent home price declines, and therefore will incentivize additional modifications in areas where home prices have been falling. By increasing MHA modifications and the use of alternatives to foreclosure, we will reduce the negative impact of foreclosure, minimizing damaging costs for financial institutions, borrowers and communities.

This is to be accomplished by: Read the rest of this entry »

Banks have been going under at a rate not seen in years, leaving the FDIC short of funds and long on assets.  They are trying to alleviate the problem by auctioning off these assets, but that's leaving surviving banks unhappy: [Thanks L!]

March 8 (Bloomberg) — A Federal Deposit Insurance Corp. plan to auction more than $1 billion in assets seized from failed banks next month, including a loan to build a W Hotel in Atlanta, may trigger writedowns that weaken lenders nationwide.

Almost half of the loans were originated by Silverton Bank N.A., whose collapse last May was the biggest in Georgia history. Community banks that joined Silverton in providing $80 million for the 237-room hotel and condominium complex, as well as backing for 39 other projects, could be forced to write down their stakes to reflect sale prices.

The auctions may have wider repercussions. Of the $41 billion in assets seized from failed banks held by the FDIC as of the end of January, $15.6 billion are real estate loans and about 4 percent of those involve participations by other lenders, according to agency spokesman Andrew Gray.

“These banks can’t believe that the regulator they pay to protect them is going to sell these loans to someone who can flip them and cause them serious losses,” said Robert Reynolds, a lawyer at Reynolds Reynolds & Duncan LLC in Tuscaloosa, Alabama, who represents 25 lenders that took part in financing the W Hotel. “Our banks just cannot believe they’re being treated in a way that ultimately hurts the FDIC’s insurance fund, because some of them are right on the edge.”

It's easy to understand the position of the lenders, who've been fighting writedowns ever since the housing market started to fizzle.  Auctions in this market are unlikely to fetch top dollar.

Read the rest of this entry »

If you think we here at the castle are "doomish", we have nothing on mortgage broker Michael David White. Here are some highlights from his assessment of the 2009 real estate market and what it means for 2010:

We have just in the last year had the largest annual fall in real estate prices, hit the highest number of delinquent mortgages measured, witnessed a record 918,000 homes taken in foreclosure, and 11.3 million home owners now own negative-equity.

 

Case Shiller prices fell a record 19.1 percent versus the previous year in Q1 2009. Mortgage delinquencies are at a record high 15.02 percent (Q4 2009) according to the Mortgage Bankers Association — meaning an estimated 8.4 million families do not pay their most important bill. RealtyTrac reported a record of over 900,000 foreclosure repossessions in 2009, and estimates a record 3 million homes will experience a foreclosure event this year. First American counts 11.3 million homes with negative equity, and sees an additional 2.3 million homeowners on the edge of going overboard and under water.

 

Every element — falling prices, mortgage delinquencies, repossessed homes, negative equity — they all hit records in 2009.

. . .

Mortgages rates hit a record low in 2009 on Freddie’s index for a 30-year fixed rate and the average 4.9% in Q4 2009 is outstanding for affordability (please see the chart above). The Fed won with low rates what Robert Shiller called in the Wall Street Journal “the most dramatic turnaround” he has seen in home-prices since starting to watch them in 1987. The year-over-year loss in values shrank last year from a monster 19% in Q1 to a mousy 2.5% in Q4.

 

Fannie and Freddie now own the mother-of-all helocs. They can write themselves checks without consideration of their losses – an important fact given they will lose more money than anybody in the aftermath of the financial crisis.

 

Can the Fed and Fred and Fannie and Ben and Tim be beaten in their mission? Will they have the power to support current real estate prices even if only half of the bubble blow-up value has disappeared?

. . .

A twin train wreck of negative equity and mortgage delinquencies will collide with real estate prices. They deflate values. No one can predict the consequences. Strategic default will be a smart choice for many. Some will discover a home can be returned to the bank. Will the madness of equity-free crowds take arms against a sea of manic bubble prices?

 

If you want to refinance and the appraised value could be an issue, get your mortgage done now. This is especially true in the jumbo market.

 

If you want to buy real estate, beware and be warned. Your financial massacre may follow your purchase. You cannot reasonably buy in this environment except with aggressive price negotiations, a close study of national and local price trends, intelligent courage, and your eye lids burned off by what you read here. Fools rush in where wise men fear to buy.

Read the rest of this entry »

So you didn't buy too much house and decided to just fix the old place up? Once more it is shown that no good deed goes unpunished:

If you have not lost your home to foreclosure, get ready to pay up. Hernando County, Florida has announced plans to raise fees on homeowners who make repairs to their property or do home improvements. Everything from roof repairs to replacing an old hot water heater will be hit with higher fees.

In his plea to the BOCC for more money, the county's business development director, Michael McHugh said, "We've been operating in fiscal distress,'' according to the St.Petersburg Times.

The reason for the budget shortfall is the foreclosure epidemic that has reduced the county’s tax rolls by some $5 million dollars.

Homeowners who have so far survived the crisis, have made home maintenance and improvement a priority. So while new construction permits have slowed to less than a dozen during some months, repair and improvement permits have risen to about 800 a month.

The Hernando County Builders Association is in favor of the higher fees, which will benefit the county's building department budget.

The impact on property owners will be widespread. In addition to the new fees, the full cost of repairs and improvements will be added to tax assessments, which increase a homes property taxes for years to come.

Read the rest of this entry »

KTAR in Phoenix said that there is New hope for underwater borrowers: [Thanks L!]

PHOENIX – Some people who go through a short sale of their home can now buy a house the next day.

Normally, a short sale means you have to wait a few years before buying a new home, but now the federal government is relaxing standards for some people.

Mortgage expert Dean Wegner said there are three rules.

"When you short-sale your house you have to be current on your loans and have no mortgage lates in the last 12 months," he said of the first rule.

Second, you have to be moving because of a life event, such as a job in another state or a new baby. There is one more condition after that.

"Your new FHA loan is going to require a 3.5 percent down payment, a 620 FICO score, and full employment and income verification – just like a normal loan," he said.

Like a lot MSM articles these days though, you can often learn more by reading the comments below.  As one commenter stated: Read the rest of this entry »

Dean Baker of Business Insider is more excited about this idea than I am:

As the Obama administration works up its 12,487th plan for keeping underwater homeowners in their homes, New Mexico's legislation had the courage and good sense to do the obvious: let foreclosed homeowners stay in their home as renters. The New Mexico legislature voted to allow homeowners in houses that sell for less than the median price to remain in their home as renters for at least one year following foreclosure.

With this simple gesture, the New Mexico legislature did more for the nation's underwater homeowners than all the brilliant DC policy wonks have managed to accomplish in the last three years with all their billions of dollars. The legislature gave low- and moderate-income homeowners security in their homes. They didn't make them jump through hoops and prove to bureaucrats that they were worthy. They didn't make them genuflect before loans servicers or bankers.

The legislature gave homeowners the right to stay in their home. And, bingo, now every low- and moderate-income homeowner in the state knows that the bank can't just throw them out on the street. And now the banks may also think more seriously about loan modifications, since they can't just throw a foreclosed homeowner out on the street. This law doesn't cost the taxpayers any money. It also doesn't require any government bureaucracy. It's easy to see why it's a nonstarter in Washington.

Fortunately, this one doesn't have to go through Washington. Every state in the country could follow the lead of New Mexico. If legislators are tired of seeing people thrown out on the street, if they are tired of seeing foreclosed homes sit vacant and ruin whole neighborhoods, they can just grant underwater homeowners in their state the same rights as homeowners in New Mexico.

Of course, this will mean bucking the banks. The banks don't see any reason that they should suffer just because they made bad loans in the middle of the housing bubble. The banks feel it is especially unjust that they should suffer since they have spent so much money buying politicians who will gladly funnel them taxpayer dollars for mortgage modifications under the guise of "helping homeowners." The whole point is to keep the homeowners paying money as much as possible as long as possible.

Baker has written about right-to-rent before and talks about many people's objection to it on the grounds that this violates contract law: Read the rest of this entry »