A “whole range” of options is being considered for investors in the two government-seized companies, “from paying nothing to a haircut to whatever,” said Frank, whose committee oversees Fannie Mae and Freddie Mac. Congress will maintain the “status quo” and won’t make drastic changes to Fannie Mae and Freddie Mac until a new system for housing finance is in place, Frank said. – BL¹

Housing Doom is delighted to report that Barney is now on the job and the urgently required agencies undisambiguation project is now well underway.  Indeed Warren Gamaliel Harding himself could not have come up with a more compelling demonstration of utter cluelessness.  It's exactly what America needed to support its T-bill sales.

Here's more from WaPo.² Igor is already off to the House with Doom's bill for consulting services.  This was our original idea after all

The comments by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, come despite the assumption of many investors that investments in the two mortgage finance giants are risk-free. Until now, federal officials — who took over Fannie and Freddie two years ago to save them from collapse — have signaled to the market that lending the companies money is just about as safe as lending to the U.S. government itself.
…

Fannie Mae and Freddie Mac use the proceeds of money raised from investors around the world to funnel cash to the housing market, providing a fresh supply of funds to make more home loans. [a one-way flow, it would seem; who knew?]

Of course the next step is for Acting FHooFAh Ed DeMarco to get up and contradict everything Barney just said, which will raise the level of doubt even further.

Holy confidence builder, Batman!  Timmy's gang reiterates support to the Enterprises, but take exquisite care to avoid mentioning their bonds.³

"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the statement from the Treasury said.

This story is moving really fast. Fellow blogger and Doom reader W.C. Varones sends additional info which pointed at this "clarification" in BI of all places by Barney himself. Note we're still talking support for the Companies not the Bonds.

Come on you people, someone get Ed back from lunch. If someone responsible doesn't balance Frank with a firm statement of support for the debt as opposed to the firms there's going to be total pandemonium in world bond markets inside another couple of hours.⁴

Margaret Kerins of RBS Securities said Frank's assessment that so-called agency debt is not fully backed by the government is incorrect. // "Regardless of the ultimate outcome for the GSEs, we expect all agency debt outstanding and issued under GSE status to remain related to the government. Reducing support is contrary to all of the actions takes by the administration and Treasury," Kerins said in a research note.

Great headline from Calculated Risk — lots of non-definitive statements happening …

"Frank: Fannie Freddie Investments not Risk Free, Treasury Clarifies"

So now Barney's retracting and non-retracting at the same time.⁵

House Financial Services Chairman Barney Frank on Friday said he agrees with the Obama administration's decision to fully back Fannie Mae and Freddie Mac bondholders to provide stability to the housing market and broader financial system.

At the same time, the powerful committee chairman said it would be a mistake to give Fannie and Freddie bondholders the same legal status as holder of US government debt by putting their obligations on the federal books.

Then FHooFAh Jim Lockhart did exactly the same thing (but with opposite polarity) on October 22, 2008 in clarifying away remarks that an explicit guarantee was in.  That time Ben Bernanke himself ended up looking silly explaining the resulting "effective" guarantee.  I wonder if the bond vigilantes are really going to swallow the same double-speak pabulum just a year and a half later.

I think this makes a nice summary …

CRisk commenter Rob Dawg: Treasury wants people to think there is a guarantee. Treasury needs to be able to claim there is no guarantee. Should either be tested; game over.

——————–

[1]: "Fannie, Freddie Holders Shouldn’t Assume Guarantee", by Dawn Kopecki, Bloomberg / BusinessWeek, March 5, 2010.

[2]: "Rep. Frank questions safety of Fannie Mae, Freddie Mac investments", by Zachary A. Goldfarb, Washington Post, March 5, 2010.

[3]: "U.S. Treasury says stands behind Fannie, Freddie", Reuters, March 5, 2010.

[4]: "U.S. Rep. Frank causes stir in mortgage markets", by Corbett B. Daly, Reuters, March 5, 2010.

[5]: "Frank Agrees US Should Back Fannie, Freddie Debt", Reuters / CNBC, March 3, 2010.

Feb. 26 (Bloomberg) — Sales of previously owned U.S. homes unexpectedly declined in January for a second month, signaling the government’s extension of a tax credit is being limited by a lack of job growth.

Purchases fell 7.2 percent, the second-largest decline ever, to an annual pace of 5.05 million, the National Association of Realtors said today in Washington. In December, sales decreased a record 16.2 percent. The median sales price was unchanged from the same month last year, the group said.

The federal tax incentive helped drive purchases in the second half of 2009 and its extension in November may have trouble generating as much demand in coming months. Mounting distressed sales are making it harder to clear inventories, indicating job growth is required to sustain the recovery in the housing market.

“We were seeing payback for the first tax credit, and the second credit is not having any measurable impact on sales,” Patrick Newport, a housing economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “Demand for housing is really weak. Improvement in the job market is really what has to happen for homes to start selling.”

Economists forecast existing home sales would rise to a 5.5 million rate in January, according to the median of 70 projections in a Bloomberg News survey. Estimates ranged from 5.04 million to 6 million.

It is true that YOY home sales are up 11.5% and usually this number is the more significant.  However, such a steep month to month decline is an important trend to note.

Newport is correct.  The unemployed, the underemployed and the worried about employment [which seems to be most people these days] aren't going to buy a house, even if you throw in a tax cut, a pony and a toaster. The tax cut tempted some, but that pool is gone for the most part.  Once more, for those surprised economists, It's the economy, stupid.

Palm Beach County residents struggling to survive the worst housing crash since the Great Depression might soon be able to blame him in person: Lereah has applied for the position of president of Florida Atlantic University of Boca Raton.

Lereah, now head of a consulting firm in Washington, joins more than 40 candidates vying for the top job at FAU. Finalists are expected to start meeting with university officials in March. Lereah didn't respond to requests for comment.

Until recently, Lereah was the nation's real estate Cheerleader in Chief, a figure known for such comments as: "We feel confident that housing is landing softly" (2005); and "Housing bubbles pop. There's no risk of that happening here" (2005).

Lereah was roundly scorned by the business world when the bubble did, indeed, pop, and he could no longer get away with this sort of comment: "We've moved beyond the low for the housing cycle last fall" (2007).

Lereah resigned from the NAR in 2007. That same year, perhaps in a bid to hedge his bets, he penned, All Real Estate is Local: What You Need to Know to Profit in Real Estate — In a Buyer's and a Seller's Market.

 

In an e-mail, Lereah said he applied for the FAU post because believes his relationships and experiences with local, state and federal government, large financial institutions, Wall Street and the media would enhance "the university's brand, attracting quality professors and improving course curriculum." He said his contacts would also help out with fund-raising.

 

But Lereah noted that the still has a child in high school and is starting to think a move could be disruptive, so he's having second thoughts about the FAU job.

If Lereah does move forward with his application, he can send students to the bookstore for his previous works. They include his 2005 book, Are You Missing the Real Estate Boom? Why Home Values and Other Real Estate Investments Will Climb Through The End of the Decade — And How To Profit From Them. (The book was re-released in February 2006, as the market showed signs of strain, under the title, Why The Real Estate Boom Will Not Bust — And How You Can Profit From It.)

And how's this for irony?

OK, perhaps Lereah isn't the best at making predictions. But one thing is certain: If he makes it to Florida, he'll have his pick of homes thanks to a real estate boom — in foreclosures. In Palm Beach County, there were 27,588 foreclosure cases filed in 2009, more than nine times the total in 2004.

But this is where little Timmy took his first steps, where Bob and I hung that lovely gold flocked wallpaper in the dining room, and we spent all those hours hauling rocks into the backyard.  Someone will come along who loves the place as much as we do, it just might take awhile.  Besides, Joe across the street got a ton of money for his place two years ago- my house has to be worth more than that!

Could it be that unrealistic optimism is changing?

Homeowners' previously upbeat views of their own homes' worth have become "overly cynical," according to a new survey released Thursday by property search and valuation site Zillow.com.

One in five homeowners, or 20 percent, thought their home's value had increased in 2009, while 28 percent of homes actually increased in value, according to the site.

The Zillow Home Value Misperception Index turned negative for the first time in the fourth quarter of 2009, to -2, the lowest score on record since the site started the survey in the second quarter of 2008.

An index score of zero would indicate that homeowners views were in line with actual home values, the survey said, while a negative or positive score would indicate either overly pessimistic or overly optimistic views, respectively.

Broken down, results were a bit mixed: 50 percent of homeowners believed their home was worth less at the end of 2009 than the year before, while in reality 65 percent of homes lost value. Almost a third — 30 percent — thought their home's value had stayed the same, while in reality only 7 percent of homes had remained unchanged.

Although it appears that there are still quite a few people who don't believe their home is losing value, this does show a big decline in homeowner optimism. This is liable to affect how people behave when faced with foreclosure and economic distress.

People are more likely to fight for their home when they view it as a valuable asset.  When they view the home as declining in value, they just might decide that if it means carrying a larger mortgage than the house is worth, little Timmy can probably manage to walk somewhere else.

The Great American Dream is starting to just look like shelter and a place to live. People are starting to dream about other things- like jobs.

[B]anks are now extending opportunities to REINSTATE mortgages loans…after a foreclosure…to the former homeowners!

You read that right….homeowner ‘loses’ their home to foreclosure. Legally, its no longer their home. Home is legally in the hands of the bank. In the past…after the homeowner loses the home in a foreclosure sale….they move out…afterall, its no longer their home..home becomes a REO listing.

Now, homeowners are being offered the opportunity to stay in their home…reinstate their mortgage reflecting the value as established at the foreclosure sale. New mortgage terms, market interest rates.

It seems that this new ’secret’ program is being tested in many major markets across the US. The former homeowner is now able to REINSTATE their mortgage…at the new value as established by the foreclosure sale. In other words, the negative equity is gone…the second mortgage is gone….back property taxes paid off…back HOA fees gone.  Their new mortgage amount IS the amount the lender paid at the foreclosure sale!

I want you to think about that for a moment. This means that even AFTER a homeowner missed payments…loses the home to foreclosure…that they can now IMMEDIATELY secure another loan for the homes current market value. WOW!

Consider this, 25% of all homeowners with mortgages are upside down by at least 10%…..10% of all homeowners with mortgages are upside down by at least 25%. HREU Students know that this trend of underwater homeowners will increase before it levels off. There are 50,000,000 mortgages in the US….as of today…6,000,000 aren’t ‘performing’. In other words, homeowners aren’t paying their mortgages!

What happens when all of these millions of upside down homeowners  discover that they can have their negative equity wiped out….secure a new mortgage…and keep their home…if they let it go into foreclosure?

I asked Tim if he could tell me any more particulars.  He said:

There is a company called Titanium Inc., which works on behalf of the lenders to do what they call home retention. Basically, they hire agents to door knock the homeowners who are headed for default and offer them the opportunity to do a mod…and if that won't work…a short sale.
 
Titanium is a very well respected and truly honorable company. They treat everyone…agents…distressed homeowners will respect. They are not the bad guys.
 
This is happening across the nation. We have 1000's of students, and I started hearing about this 2 weeks ago. So, I picked up the phone and started calling HREU students and asking them if they have been asked to do reinstatements.

Here is the process:
 
The agent gets an assignment from Titanium. The assignment is to go to the JUST foreclosed home and offer them a reinstatement of their loan using the NEW loan terms (Basically, a principal reduction. The new mortgage amount will be for whatever the property went for at auction). Any lingering debt from the previous loan…wiped clean…poof gone. Late HOAs, Taxes, Seconds, Liens…all gone. Homeowner DOES have trashed credit but, matters not. New mortgage, new loan amount.

So would this be a good deal, or not? It certainly sounds easier than a loan mod- no need to get investor approval or to work out a deal with other lien holders. It avoids evictions, keeps homeowners in their homes and keeps a property from being vacant.  On the other hand, if this were to become widespread, WHO IN HECK WOULD BOTHER PAYING THEIR MORTGAGE?

I know the government doesn't worry about scaring private investors away from purchasing MBS- Fannie and Freddie will purchase anything that has mortgage written on it.  Our mortgage industry has been nationalized. The losses for lenders however, would likely to be huge, should something like this become common. Why then would lenders consider doing something like this, if this is indeed going on?  My guess would be because the losses would be nationalized as well.

Tim said that he could provide us with the names of agents that could verify that they have been seeing this being done by lenders.  Where's our industry folks? Has anyone else heard of similar reports?

One issue that Tim made perfectly clear, and we all felt was important to get out to those of you who may not have attended, is this.  In Arizona, there is anti-deficiency protection for a large number of property owners who go through foreclosure, however, there is no statute that proves anti-deficiency protection to any property owner in the case of a short sale.  Our anti-deficiency laws only cover foreclosure.

Tom Farley stressed that it is important that we not make incorrect representations to the sellers in this regard.  The deficiency protection they may be able to receive is only found in the terms of the short sale approval letter provided by the lender. If the lender does not fully release them from the lien, but only releases the property to close and transfer, there is not any guarantee that the lender will not pursue the seller for the remainder of the unpaid balance on the note.

One popular myth that was dispelled at yesterday's meeting is that there was protection if it was purchase money.  This is not true.  While some lenders are providing the release in these cases they are not obligated to do so.  Tom stressed the importance of legal counsel for sellers facing short sale with regards to this issue once again.

I'm not familiar with the law in this case, but consulting an attorney sounds like sound advice- no matter what state you live in.

The National Association of Realtors is expected to announce an 11.6% drop in December existing-home sales to a seasonally adjusted annual rate of 5.78 million, according to economists polled by Dow Jones.

The large drop is exaggerated by the initial Nov. 30 expiration of the government's first-time home buyer tax credit, which previously boosted sales by some 28% from August through November to an annualized rate of 6.5 million units, the most since early 2007.

The tax credit has been extended through June, but most analysts don't expect sales growth to resume until February or March. In the meantime, further declines in existing-home sales, which make up nearly 90% of the market, are sure to raise concerns about the recovery in housing and the broader economy.

But there are scattered signs of improvement. Home-price declines have slowed; the S&P/Case-Shiller index out Tuesday is expected to show prices in 20 major cities down about 5.4% in November from a year ago, compared with a trough of nearly 20%.

It's interesting that while the WSJ feels that the numbers are "exaggerated" by the drop, back in November, they didn't seem to think that the rise in sales was "exaggerated" by the tax credit when they announced that Existing Home Sales Jump 10.1%: [Although they indicated that the tax credit was a factor.]

Home resales leaped in October, rising far more than expected as a fat tax credit offset fears about joblessness.

Sales of existing homes increased by 10.1% to a 6.10 million annual rate from 5.54 million in September, the National Association of Realtors said Monday.

Inventories kept shrinking. Prices fell, but the NAR said the decline was the smallest in more than a year.

The 6.10-million rate was the highest since February 2007. Economists surveyed by Dow Jones Newswires expected a 2.3% increase in sales during October, to a rate of 5.70 million.

"Many buyers have been rushing to beat the deadline for the first-time buyer tax credit," NAR economist Lawrence Yun said.

Aside from the tax credit, low prices and mortgage rates have drawn in buyers, concerned as the U.S. unemployment rate climbed in October to 10.2%.

Along with the cheery news last November, the WSJ included this video interview with noted expert Ken Rosen of the Fisher Center for Real Estate.  Rosen indicated then that the extension of the tax credit was going to have an even bigger effect over the next six months:

Buyers are now going to expect tax credits as long as the market is weak, and the credits are unlikely to have the fire sale effect they did last October.  It's the upside that was exaggerated last October, not the downside that we are experiencing now.

***************************************************************

Update:

Oh look at this.  After expecting a drop of 11.6%, the drop was actually 16.7%- the largest drop on record.  I wonder how the WSJ spins this one?

SAN FRANCISCO—California's inventory of unsold, previously owned homes shrank to a five-year low in December, in another sign that the state may be coming out of its worst housing slump in decades.

The supply of unsold single-family homes dropped to 3.8 months from 5.6 months a year ago and 16.6 months in January 2008, when inventories were at a peak, according to estimates released Friday by the California Association of Realtors. The inventory levels are now at their lowest level since 2005, resulting in frenzied sales with multiple offers in some cities.

In Northern California's Santa Clara County, where inventory has dropped to 50 days from 243 a year ago, Amanda Garcia said she and her 62-year-old father Luis Garcia finally gave up a nine-month search for a home last month, after they kept losing out on homes priced in the highly competitive sub-$500,000 market.

"It's more like an auction nowadays," said Ms. Garcia, 26, a medical coordinator from Milpitas, Calif. "They shouldn't call it a house sale."

The WSJ also says:

The current inventory rate is running well under California's historical average since the 1980s of about an eight-month supply of existing homes on the market. That's partly because a once huge supply of foreclosures in the state has dwindled. In November, foreclosed properties accounted for 40% of all single-family sales, new and used, in California, compared with 58% in January, according to the most recent estimates by Zillow.com, a market tracker.

This is a curious statement, given this comment from RealtyTrac's latest report:

A total of 632,573 California properties received a foreclosure filing in 2009, the nation’s largest state foreclosure activity total and an increase of nearly 21 percent from 2008.

This is in spite of the reluctance of lenders to foreclose and all of the foreclosure prevention efforts of governments and lenders. It's hard to keep borrowers in homes though when borrowers don't have jobs:

California got coal in its stocking for the holidays as employers cut 38,800 jobs in December and the unemployment rate registered 12.4 percent, according to an Employment Development Department report that showed little sign of life in the state's labor market.

Also, the November unemployment rate – initially reported as 12.3 percent – was revised upward to 12.4 percent on Friday.

December's figure would have been even higher had not 107,000 Californians quit looking for work last month and thus fallen out of the calculations.

December's labor force dropout figure was the highest on record and marks the eight consecutive month of shrinkage in the number of Californians looking for work.

The state estimates that 2.254 million people were unemployed in December.

In addition to the jobless, state officials say 1.53 million Californians were forced to work part time in December because they couldn't find anything full time and another 903,000 people had stopped looking but wanted jobs.

So why the low inventory then?  One explanation is offered by Sean O'Toole, CEO of ForeclosureRadar.com:

O'Toole said investors are dominating auctions for several reasons, including the dearth of homes available to them on the listed market and even fewer that can be resold for a reasonable profit.

The inventory shortage is due to owners who are not willing to sell homes at relatively low 2009 prices and to government programs encouraging lenders to extend delinquent loans, keeping some defaulting owners in their homes, according to O'Toole.

At the same time, many banks are believed to be sitting on a large cache of foreclosed homes not yet on the market, known in the real estate industry as "shadow inventory."

If the inventory "shortage" were a result of employed Californians buying primary residences, this would indeed be indicative of a housing recovery.  Until employment and the general economy improves however, it doesn't matter what the "official" inventory is.  The market is going nowhere.

Long time owners cashed out from 2004-2007 and the new owners leveraged their properties greatly.  They were sold on the idea that rents in tucson were too LOW. But hey, with property prices rocketing up, it took no genius to realize the time bomb investors where sitting on, and we’ll see a few more of them explode soon this year.

I sold some apartments in 2007 which are now in bankruptcy – this guys problem was that he didn’t have good financing and not a lot of money behind his grand dreams.

I predicted it when I sold it and EARNED MY COMMISSION.

Now I am looking at buying them for a steep discount.

It’s not clear to me if Saba was merely the seller’s agent, or if he owned those apartments in 2007. Whatever the case was, I’m wondering who he made his predictions to when he "earned his commission".  Did he warn the buyer, who ignored him?  If so, I suppose there’s a certain poetic justice if the agent buys the apartments now.  Why do I get the feeling though that he made his predictions to someone else?

What do Doomers think?  Did Saba "earn his commission"?

M told me that he found the following in the Realtor Remarks of a Scottsdale short-sale:

REALTOR Remarks: Lockbox removed 11/1/2009. It looks like this one will go to trustee sale despite a reasonable offer being presented to the lender. Another fine example of the inefficiencies and lack of logic on display by a lender. Sorry, fellow agents, I know many of you tried to help your clients buy this one. I appreciate your hard work, but we could not overcome the lender’s incompetence.

Sure, there’s the other side of the story- lenders are swamped.  I can’t help but think though that lenders can do better.

I’m wondering the same thing.  [There are no other photos, so we don't know if the cabinets have been removed yet.] Where’s our agents?  What do you guys think?

Sales of previously owned U.S. homes rose in October at a faster-than-expected pace to the highest in more than 2-1/2 years as buyers rushed to take advantage of a popular tax credit, a survey showed Monday.

The National Association of Realtors said sales surged a record 10.1 percent month-over-month to an annual rate of 6.10 million units, the highest since February 2007, from a downwardly revised 5.54 million-unit pace in September.

Analysts polled by Reuters had expected October sales to jump to a 5.70 million-unit pace from the previously reported 5.57 million units in September. Compared to October last year, home sales were up by a record 23.5 percent.

Why such a jump in the slow season for housing?

"Many buyers have been rushing to beat the deadline for first-time buyer credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November," said Lawrence Yun, NAR’s chief economist.

Yun, as usual, was positive about the data:

"Existing home sales have already bottomed. Home prices are almost there. We are seeing a less of a decline in house values," said Yun.

The problem for the housing market now however, is how the extension of the housing credit is likely to be perceived.  The relatively short time period that the housing credit was originally available gave it the appeal of those late night infomercials. Realtors peddling it sounded like,  "You need to act now! This offer only available for a limited time.  If you are one of the first 200 callers, we’ll throw in a free vegetable peeler!"

It is now clear that as long as housing is in trouble, we are likely to have a  buyer tax credit.  If people are not convinced that they need to act quickly before it expires, they are more likely to take their time and let the prices fall.

The "Act now!" commercials work.  That’s why we see so many of them.  Give buyers a chance to think about it though, they are likely to realize that they don’t really need a new vegetable peeler- at least not any time soon.

A recent scam reported in the Phoenix area involves tenants moving into a pending short sale listing. The surprised listing agent contacted the owner who had not rented the property to anyone. The tenants (two women with two children) were physically moving in and had turned on utilities in their name. The sign and the lock box were removed, and all locks were re-keyed. 

The tenants responded to a "For Rent" sign in the yard. They gave someone $1,800 as rent and signed a lease. While the short sale was able to close, the unfortunate victims of this scam were out $1,800 with no place to live.
 
This down economy encourages some people to take advantage of others.  Listing agents should check their vacant listings regularly and provide neighbors their contact information in case they observe any suspicious activity.

If you own a place like this, you might want to follow the same advice.  It wouldn’t hurt to let neighbors know what you are planning to do with the house and leave a phone number- that way when the sign changes from "For Sale" to "For Rent" without your knowledge, [And your agent doesn't know about it.] someone can let you know.

Housing Doom is pleased to present a second selection from our under-construction transcript of the American Enterprise Institute’s October 22, 2009 event "The Deflating Bubble, Part VI: The Lessons of the Bubble and Crisis".¹

The event site has a number of resources, including an audio and video of the proceedings. There is as yet no official transcript.

This is the presentation by UBS fixed income researcher Tom Zimmerman.  Tom’s the most moderate of AEI’s Six Bears but in my opinion the scariest, because he usually brings the hardest data to the table.

Tom Zimmerman: [0:11:43] Thanks a lot, Alex, it’s great to be here again. [slide 0²] What’s amazing about coming down here every 6 months is that I’m usually viewed as one of the more bearish people in my shop, and also when I speak at conferences around the country I’m usually sort of sitting on the bearish side of these discussions. But I come down here, [laughs] and I’m not … it’s a … I feel like I’m a raving bull about what’s going to happen in the world when you listen to some of these people talk. So anyway, that hasn’t changed, in the last 6 sessions, so …

We had lunch together today, and it’s exactly the same.

I see some green shoots here and there, but I think that it’s not something the other panelists see some real major problems down the road.

What I thought I’d do today is just continue some of the things I’ve talked about before in terms of the housing market, mortgage market. And then at the end talk about some of the lessons that we’ve learned from this bubble which isn’t over with yet, but we’ve learned some lessons or at least some take-aways from it.

But just the first couple of slides to go through what’s happened to the housing market here in the United States, and as most of you know, there are some positive signs. [slide 1] The existing home sales, new home sales, have bounced back a little bit the last few months, granted from very, very, very low levels from new houses, that’s for sure.

One questionary note: you take a look at the existing home sales, which are by far more important that new home sales in the total scheme of things — [slide 2] California came out (which is the West, that orange line there) … The existing home sales bounced back pretty rapidly back in 2008. And now what happened is the rest of the country sort of caught up with it, but you see California and the West has sort of slowed down now, while the rest of the country’s started to take off a little bit.

And I think what this slide points out is that you do stimulate sales when you crash a market completely, and California’s housing market crashed first, and I think that’s where you see the existing home sales came back faster. The questionary note — this bit of a bounce we’ve gotten in the other parts of the country may be a reflection of that process as well. So we may end up with a little bounce, and then going sideways the next 2 years. So I wouldn’t read too much into this particular chart.

Inventories are down, [slide 3] certainly more so on the new home sales than on existing home sales, and we’ll talk more about this inventory situation which … This is the visible supply, which is your local realtor board has it on their sheets. There’s a shadow inventory, which is considerably larger than this, and we’ll talk about that later. So this is positive, but not as good as it might be.

This is definitely a positive chart. [slide 4] This Case-Shiller index of home prices, and if you saw the article by Robert Shiller last week, and he said he’s amazed at this chart. You’ve got the last 3 or 4 months in positive territory for these 20 MSAs [Metropolitan Statistical Areas]. Granted, there’s a very sharp seasonal pattern to the housing market. I’m guessing, I’ll bet that these numbers will be in the negative territory by fall and winter. But nonetheless, this is a pretty amazing chart compared to where we’ve been. So his analysis of it in that article said something to the effect that he’s amazed that people think the housing market could have done as well — is going to do, [0:15:00] meaning that he had his survey, and I forget the percentage but a large number of people who were buying homes felt that in the next year or so their houses would be worth a lot more. So we’re sort of back to that … a little bit of that psychology’s coming back into the marketplace. That surprises me, by the way.

And it’s not just one area, it’s right across the country. [slide 5] Because this is … only in Las Vegas was the last datapoint negative, so it’s not just a few parts of the country.

In terms of affordability, which is this chart. [slide 6] This is a combination of home prices, interest rates and income. But certainly what’s happened here is this decline in the overall prices around the country has had a significant impact, as has the Fed and the Treasury keeping a lid on mortgage rates, which is pretty instructive here. When that goes away, this won’t look quite so good.

And this chart, [slide 7] if you take a look at that right-hand chart, it shows — the right hand statistic — is the percentage of the securitized market which is made up by non-Agency securities. And historically the non-Agency, which was subprime, Alt-A, prime, Jumbo, etc. used to run 19 or 20 percent — jumped up like 50 percent during the bubble, and now it’s down to 2 percent. And that 2 percent is mainly just re-securitizations of old loans that were out there. That business doesn’t exist, basically.

The securitizations, which used to be upwards to half of our market in America doesn’t exist right now, so in terms of your view of where the housing market goes, it’s still very hard to get a loan. It’s very … still very difficult to take out a loan unless you have a super-high FICO score and a lot of money. So that’s one of the big negatives, which is still here. That hasn’t changed.

And one of the big questions facing the mortgage market is going to be, "How do you wean us off of a total US government product?" And that’s basically what we have — HFA, Freddie, Fannie, etc., that’s it. There’s very little private mortgages going on.

Of course, the foreclosure numbers are astronomical. [slide 8] We’ve all heard about this on the front page of the paper. But this chart is pretty instructive. What you see in the paper, you don’t go back and see the history. But this is really an outlier from the last 30 years here in terms of foreclosures. Very significant number.

And one of the problems — This is the biggest … 2 big problems facing the market as I see it.

Some of that positive data we looked at. It’s a very sharp seasonal pattern to the housing market, and once you go into the fall and winter months both prices and sales might not look so good. So I would be prepared for some pretty negative numbers. It’s already started, by the way. The last couple of weeks you saw some numbers coming out which reflected the … according to the new … to the home builders it reflects the fact that this $8,000 stimulus tax refund might be … well, it’s due to expire in November 30th, whether they renew it or not I don’t know, but if you notice in the paper the last couple of days, there have been a number of articles about … criticizing that program. I think … and it was an amazing number: it’s something like 1.2 million Americans have signed up for this $8,000 credit. That’s like every house that was sold. Like, everybody thinks that they can get this credit.

I just read an article today, that in the investigation they found out that there’s quite a few people under the age of 18 who signed up for it as well, so … [laughter] it’s a classic example of … I mean, it’s an amazing program, but they’re planning on renewing it, I think, as part of the … Keep America Going.

But in any event, part of the problem is that this chart [slide 9] is a roll rate chart which shows the … this is for non-Agency product, which we’ve followed pretty closely at our shop. And what it shows is the percentage of loans … this particular part of it shows the percentage of loans which are in this 90+ day delinquency bucket, which is really a bad, bad bucket. And as loans age from 30 to 60 to 90 and they roll into foreclosure, and they get liquidated, what’s happening is that the servicers, mainly for political reasons, are not pushing these people through. So what happens is, this roll rate, i.e. the percentage of loans that are in a 90-day bucket, which get rolled into foreclosure, has slowed down pretty dramatically. And you can see it in this data right here. It’s still going on, by the way.

So one of the problems is the build-up of delinquent loans in 90 days and foreclosure, etc. which don’t get pushed through and pushed out to the system.

That earlier chart, we saw the inventory of unsold homes. Those are the homes listed on MLS. That’s not all this stuff. This stuff is back there waiting to come out, and that’s one of the biggest problem’s we’re going to have to deal with.

He’re another example of that, [slide 10] just of the different services, and you can see that some people are doing more and better than others in terms of these 90-day buckets getting pretty big. But I won’t spend much time on this.

But here’s a broader picture of these 4 parts of this non-agency market. [slide 11] And what you’ll see is this … the blue line is REO, and it’s kind of coming down in some of these sectors. This orarge line is foreclosure, and the yellow line is 90+ day. [0:20:00]

That 90+ day and that foreclosure bucket you’ll see in all these sectors is still rising, even though the total may be going down. That amount of … the amount of loans that are in this 90+ foreclosure bucket is growing.

This is a big question mark for the market for the next year, I would say.

This [slide 12] is our best estimate of what can happen over the next few years in terms of tracking these delinquencies as they go through the pipeline. And the solid lines are stock figures, the dotted line is a flow figure. The solid lines are showing 60+ day delinquency on the top, will peak out somewhere towards the end of next year, the REO and foreclosure numbers a little later. And then this dotted line is what we estimate are the liquidations out of the foreclosure bucket going into … out of the REO bucket, and actually being liquidated.

And so you can see that this chart says that the bad stuff continues all the way up through the … almost the end of next year.

So the housing market has a lot of wood to chop to get through this cycle. We’re not over by any means in terms of the negative part of the housing market, even though you’ve seen some positive indicators in the past 3 or 4 months. We have a long ways to go in the housing market.

This is a chart which shows the number of people who are underwater. [slide 13] If you add all those to the right in the negative side, it comes up to about 30-some percent, so more than 30-some percent of Americans have homes which are underwater right now. Not a good sign.

And finally, [slide 14] this program that’s in effect right now which the government’s pushing, the HAMP program. This is like the 3rd or 4th go at this. As you know, the first three didn’t work very well. And this program has lots of detractors, if you talk to the servicers and what’s going on.

Part of it, and I’ll talk about it in a minute in terms of lessons learned in this cycle, it’s not a new lesson, but the government has a problem in dealing with problems like this where you can’t be sloppy about how you deal, because you get criticized for allowing … just like the problem I mentioned earlier, about this refund program. They’re getting 18-year-olds signing up for it. So they … for this modification program, to save the American housing market, the Treasury and the IRS created this nightmare of paperwork to be done. So basically, they have 2 parts of this program. A trial period for 3 months; after 3 months of making your lower reduced payment you go into a full modification. Well what’s happening is during this 3 month trial period, the people are are not filling up all the documentation they require to go into a full modification, because of all the complex nature of this program that was established.

So here we have something announced back in March, launched in May, now they’re finally last month decided to streamline the documentation process, because it’s so complex no one could do it.

So this is a perfect example of things government doesn’t do very well.

So I don’t hold a lot of hope that this will really … this big program, although you’ve heard a lot about it, is going to have a really major impact on the foreclosure numbers that we looked at earlier.

And I’m going to jump through a couple of things here and go on to lessons of the bubble. [slide 18 ... 15-17 not used]

And just … how much time do I have? …

voice: … three minutes …

Tom Zimmerman: … three minutes … OK, lessons in 3 minutes.

This is … Alex and I have talked about this. You’ve got to have regulation, but it’s necessary but not sufficient. It’s people and politics that run this thing.

The rules and regulations are out there. It was a bubble, pure and simple. It’s not so pure and not so simple, but I mean it was a bubble. And I don’t care what regulatory environment you put together, you’re still going to have bubbles.

I think the bank regulatory effort to go toward a single regulatory body is probably a wrong thing to do. I like to have different people competing with the process; different ideas, different … I think we’re better off in this crisis having 3 or 4 different agencies who are able to deal with different parts of this problem. And if one didn’t do it, somebody else picked up the slack — and they did it outside their jurisdiction, but they did it anyway.

So I prefer to have several big players able to help solve these problems than just one person, one agency that might not get it right.

The government is great at some tasks, it’s terrible at others. I think the way they solved that bank liquidity problem, after all those efforts the Fed did to bring the banks back on-stream lending to each other was fantastic. I don’t think anybody can criticize that. But as I just said, that HAMP program is a disaster, and most of these big programs that they’ve launched in the housing market are disasters.

So government can do certain things well, certain thing they don’t do very well at.

The pendulum theory — it’s always there, this is not new. In terms of consumer finance, they stopped the subprime lending 2 years ago with that regulatory … it was done, it was dead. There was no subprime or Alt-A lending after they said, "fully indexed, fully amortized, that’s the way you qualify a loan." End of story, end of subprime, end of all that craziness. That was done two years ago. Now you’ve got Reg Z coming on-stream, you’ve got the new bank card regulatory thing.

Believe me, the consumer’s in good shape. We don’t need [0:25:00] a Consumer Finance Protection Agency. All you’re going to have is an enormous bureaucracy that doesn’t change things very much.

We’re just too far, too much, but that’s typical. Pendulum swings too far. And they’re talking about this pre-emption of Federal rules which I’ve seen in the paper today that they’ve backed off a little bit on that. That would be a nightmare. Talk about your bankers here. Talk to any banker about this, trying to meet 50 different rules and regulations instead of one or two is crazy. I mean this would really cost a lot of money, if you had to had to deal with every State and locality in the country.

And finally, [slide 19] just a couple of obvious things about lessons, you know, [laughter] they’re hypocritical … during the crisis, everybody in this room was so glad when BofA bailed out Merrill Lynch for gossakes. You know, my grandmother has her account with Merrill Lynch. Who’s going to save her. I mean everybody was glad when these things happened, and when the Fed bailed out the whole system, and then, you know, 6 months later they’re killing the banks and the Federal Reserve? That’s ridiculous, you know.

There’s two different worlds. When a war is on, you just get it done, and then later on — don’t go back and criticize the generals for what they did, just do it.

Anyway, that’s just my own thing.

And then, the last thing. I’ve been into Wall Street for a number of years. I’ve seen a lot of these cycles like some other people up here. And when things are really, really going good, you know it’s not going to last. It’s the old seven fat years and seven lean years. So don’t be too happy the next time you’re in a really good part of the market, because it won’t last forever. Thank-you. [0:26:24]

Notes and References

[1]: "The Deflating Bubble, Part VI: The Lessons of the Bubble and Crisis", AEI event homepage, October 22, 2009.

[2]: "The Deflating Bubble, Part VI: The Lessons of The Bubble and Crisis" (PDF slide deck), by Thomas Zimmerman, UBS, October 22, 2009.

0. Title
1. Existing and New Home Sales Appear to Have Bottomed
2. But Sales in the West Raise a Question
3. Inventory of Existing and New Homes Has Dropped
4. Home Price Indices Have Turned Positive
5. Case Shiller 20 MSA Indices Gained 1.6% MoM in July
6. Affordability Has Reached an Historic High
7. But Non-agency MBS Market is Almost Non-existent
8. Foreclosures at Record Level
9. Monthly 90-day to Foreclosure Roll Rate Still Falling
10. Delinquency Buckets By Subprime Servicers
11. Loans in Delinquency Buckets by Product Types – Total Non-agency
12. Expect 5 MM Defaults In 4 Years Plus 2 MM in Delinquency
13. Distribution of Homeowner Equity
14. Government Programs Have Had Little Impact So Far
15. Debt Burden Still Elevated
16. In Spite of Fundamentals, Toxic Assets Have Rallied
17. 1-4 Family Mortgages Outstanding
18. Lessons of the Bubble and Crisis
19. Lessons of the Bubble and Crisis – (cont’d)

Six months ago we talked about the Phoenix housing market being a "tale of two markets"- a world where homes below $100K were flying off of the shelves and where million dollar homes sat and languished.  As you can see, that is still pretty much the case: [Data from ARMLS]

The most significant change in the last six months was the percentage of sales below $100K.  Last March, sales below $100K were 40% of sales, now that percentage has dropped to 29%.  Sales have improved in upper brackets, but only slightly:

Where are prices headed?

Let’s take a look at supply and demand. I am not a big fan of the term "months supply", because in some ways that term is misleading.  It is however, as a ratio of listings to sales, a useful number. It tells us how balanced supply and demand are.

The National Association of Realtors considers a six month supply of homes on the market "balanced".  Let’s say then, for the sake of argument, that you would probably expect prices to rise when months supply drops below the six months supply, and lower when months supply rises above that.

If that were the case, based on the above chart, we can expect a lot of downward movement in home prices over $400K.  As those homes only represent 7% of sales however, they can fall substantially without having a huge impact on the median price, which was $145K in September.  Just because the median isn’t crashing though, doesn’t mean that the marked is "stabilizing".  Minimal sales at the upper end will drive foreclosures and mean big losses for lenders.  According to RealtyTrac:

In 2006, about 55 percent of foreclosures were on subprime loans; in 2009, subprimes represent just 35 percent of foreclosures, while another 35 percent are in the middle tier and 30 percent are in the top tier.

Inventory is down- at least the "daylight inventory"

Last March there were 34,581 single family homes listed at the end of the month.  At the end of September there was 25,301.  It sounds like a significant improvement, but the question is, where have the homes gone?  Some have sold, sure, but not all of them.

For example, there were 1183 homes listed for $2M or more last March.  81 homes have sold in that price bracket since then.  You might think that there would be 1102 or more homes listed or more, depending on how many new homes were listed.  There were however only 774 homes listed in that price bracket at the end of September.  The rest of the listings have expired, been canceled, or perhaps the price of the home has been dropped below $2M. That’s a 35% reduction in the $2M+ inventory, but only 7% was due to sales.

Why the inventory drop? 

There are multiple reasons- sellers become discouraged and pull their homes off of the market; some go into foreclosure and possibly, banks are moving them from active listiings back into "shadow inventory".  RealtyTrac said of the national housing inventory:

We know when the banks are taking properties back it’s taking longer for them to put them back on the market. "Last year our analysis found that only 31 percent of bank-owned properties were listed for sale. We’re assuming, given part of the market dynamics this year, it’s closer to 50 percent.

Given that the rate of foreclosures in Phoenix is well above the national median, it is possible that ratio could be even higher here.

So with sales rising and price drops moderating, is the Phoenix housing market looking better?  In a word, no.  While some price ranges and areas might be looking better, you could fly a 747 between the current housing market and "recovery".  There’s still a lot of pain to come.

Google Street View has just come online in Halifax, and I’m very pleased with having just discovered an improved walking route between our digs and the campus of St Mary’s.  As it happens, the Armoury Square condo project featured in the article lies just about halfway along the route, and can serve as one of the focal points as I build a picture of my world over the next several weeks.  When we hit the 2nd leg of the downturn (in about 3 weeks?) all this new stuff is likely to blow up …

but meanwhile, let’s just enjoy some untypical non-Doomish Realtor overoptimism

Here’s just a taste of things to come as I learn my way around Street View.  Before I came on board Doom I’d been working at DREA in Dartmouth.  On most days I walked across the Old Bridge (pedestrian way to your left, bikes right).  Swivel the viewer around as you proceed for a great view of Halifax Harbour (typical gray day when the car was on the bridge; green girders at eye level) right down to the offing and up to the Basin.  The walker’s view south is unobstructed and I often saw shutterbugs setting up on the deck as I’d be going past.

View Larger Map

Unfortunately, Street View’s coverage of the North End is still a little spotty, but I’ll share the principle trick to the walking route.  Below you’re looking south into the VG campus of the QE II hospital.  Turn the window around and you can walk right up the length of Summer Street to the Commons.  The Armoury (and Armoury Place) are at the opposite corner of that, and from there I go Agricola / North / Fuller / Isleville.  I’ll try to return to this post once the Google car’s been to more of that.

View Larger Map

Now you’re looking north into the same campus.  There’s a Common Law walking route right through it.  Turn around and now you can walk straight down Wellington to the campus of St Mary’s, a delightfully straight stretch for pedestrians.

View Larger Map

——————————–

[1]: "Condo prices rising", by Tom Peters and Chris Lambie, Halifax Chronicle-Herald, October 9, 2009.

The median home resale price in metro Phoenix increased in June for the first time since 2007 — a direct result of increasing trends of multiple offers on properties and a large reduction in active listing inventory, especially bank-owned properties, according to Fidelity National Title and The Cromford Report.

Even though home sales are near their 2005 peak, one agent says it’s still tough to sell real estate in Phoenix: [Thanks L!]

Brett Barry is a well-known north Phoenix agent who has gone from selling dream homes to handling evictions and open houses for foreclosure homes. He moved his office into his living room, works much longer hours for far less money but still makes his living selling homes.

According to the Arizona Republic, the number of realtors has dropped 20% since 2007:

During the boom years there were nearly 80,000 real- estate agents in Arizona. According to the state’s Real Estate Department, the number of active agents has dropped 20 percent since 2007.

Former Valley real-estate agents are working at restaurants, grocery and clothing stores, and temporary office jobs. Some plan to go back to selling homes when the market recovers, while others have given up on the business.

"I was recently at a restaurant, and the guy serving us used to be one of my big competitors," Barry said. "It’s humbling for all of us. I told him not to feel bad about being a waiter because I am basically a runner for lenders these days, dealing with many unhappy people for not much money."

Back at the peak of the market, a lot of these guys basically turned in their boxtops and spent a couple of weekends getting their license.  It was easy to get a license and easy to sell a home.  The world has changed, and the market will be a better place when the amateurs go back to their day job.

But back to Barry.  He’s saying that he might have the wrong car for the job:

Many clients were neighbors who recognized his yellow Porsche. People would know a home was going on the market in Tatum Ranch before a sign went up if Barry’s car was in the driveway.

About 60 percent of all Valley home sales now are foreclosures. About 15 percent are short sales. Even if a home isn’t in some stage of foreclosure, a seller must compete with foreclosure price levels.

Barry takes every listing he’s offered, including several foreclosure houses 30 miles away in south Phoenix. He must keep an eye on the vacant properties and is the one police call in case there is a break-in. Driving out to each property for weekly reports to the lenders has put 30,000 miles on his Porsche during the past year.

Barry is thinking of selling the Porsche. Luxury cars stick out in less- affluent neighborhoods. And they don’t go over well with homeowners when Barry arrives representing a lender to evict them.

Sounds like a good move, Barry.

The increase in existing-home sales occurred in all major regions of the country,” he said. “We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions.

 Here’s a picture of what the "increase" in home sales looked like:

Yes, once more the NAR and the markets are focused on seasonal variability rather than the more significant yearly trend- which is down.  That’s tough to do when you consider how bad sales were last year. Yun’s "gradual uptrend" is unlikely- the summer selling season should be winding down soon.

Here’s what Yun said about appreciation:

The national median existing-home price3 for all housing types was $181,800 in June, which is 15.4 percent below June 2008. Distressed properties, which accounted for 31 percent of sales in June, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes.

With foreclosures accounting for nearly a third of home sales, I would disagree that they are "distorting" home prices.  To a large degree, they are defining it.

Long time Doomers might have noticed that it’s been a long time since I’ve dusted off my NAR charts.  I’ve been neglecting them.  Is there anything else we’re neglecting? This is an open thread, so let us know what’s on your mind.

Affected were over 130 investors and 270 prospective homebuyers, multiple defrauded lenders and 130 properties in foreclosure:

[Thanks M.R.!]

The complaint states that the defendants participated in a scheme that used deceptive tactics to entice under-qualified, novice investors into purchasing homes and then sold them to rent-to-own buyers. However, the attorney general’s office says the scheme was designed to fail by targeting rent-to-own homebuyers with credit problems and ignored whether they could qualify to purchase the homes.

The alleged scheme occurred in three parts. First, the scheme allegedly enticed investors to buy homes they could not afford. Second, it allegedly deceived lenders in order to allow unqualified investors to secure loans which would profit loan orginators. And third the scheme allegedly defrauded rent-to-own consumers into a scheme which was designed to fail.

Read the above link for the morbid details- I was amazed at how many fraudulent techniques this crew managed to pack into their master plan- and I’m pretty tough to amaze any more.  Here’s one thing that didn’t amaze me though:

According to the complaint, few investors read all of the loan documents presented to them for signing.

Kudos to Goddard for prosecuting this one, but there’s a limit to what the AG can do.  It’s tough to protect people who won’t take the trouble to protect themselves. We will never know how much fraud could have been avoided by consumers reading before signing, signing nothing they don’t understand and knowing that if it sounds too good to be true, it probably is.

May 12 (Bloomberg) — Home prices in the U.S. dropped the most on record in the first quarter from a year earlier as banks sold seized homes and foreclosures in California and Florida dominated sales. [1]

Oh, well.  Sometimes things don’t work out quite as advertised.  Twist is busy with other priorites so will be out of internet range for a day or too, and the above tip from Doomer JimAtLaw couldn’t wait.

The big story is NAR’s latest survey.[2] The impact of foreclosures on the market is obvious, so this would indicate the cycle is moving to a new phase.

UPDATE: Doomer cpgone contributed this link to a NYT graphic of prices by city, and other commenters contribute information below.  Thanks!

———————-

[1]: "Home Prices in U.S. Drop Most on Record in Quarter", by Kathleen M. Howley, Bloomberg, May 12, 2009.

[2]: "Foreclosure and Short Sale Discounts Weigh Down Metro Area Median Prices", NAR, May 12, 2009.

First-time home buyers responding to improved affordability conditions, and lower prices of foreclosures and short sales, impacted metropolitan area median home prices in the first quarter, while existing-home sales remained sluggish in many parts of the country, according to the latest survey by the National Association of Realtors™.