Housing Doom

I received an interesting email yesterday from Tim Harris, who runs a real estate coaching company along with his wife Julie.  Tim said that I would find this interesting, and he was right.  He wrote a post Wednesday entitled URGENT BREAKING NEWS: New ‘Secret’ Program, Homeowners Given New Mortgages Immediately After Foreclosure! Here's an excerpt:

[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: Read the rest of this entry »

I've always maintained they could have done a lot better than Swinton …

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… Historically, the New York Fed has been among the most profitable shareholder-owned corporations in the world. Yet it keeps the details of its shareholders’ ownership information private. What we do know is that its owners include precisely those institutions it is tasked to regulate and supervise and those [it] has obviously failed to adequately supervise. – Josh Rosner¹

Or to ask the obvious question with reverse sense; Does Wall Street Own, As In Literally Own, Its Own Regulator?

Rosner's article is long, detailed and well worth reading, but I think the question he brings up in the above needs to be clarified, like, yesterday.

Read the rest of this entry »

Hat tip to Death By A Thousand Paper Cuts for directing us to Morgan Richmond's comments on the most recent report by the Inspector General for TARP.  This assessment is IMPORTANT: [Page 6 on original report]

The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.

• To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.
• To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
• To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.
• To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

 

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

John M addendum: sorry, twist, but couldn't help myself (don't tell the chickens )

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"Another month or so, these old, guaranteed [AIG] bonuses will be a thing of the past." – pay czar¹

Yes, it really is that simple.

WARNING: no visible volume control and very, very LOUD

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Yo, Ken! "… signed into law"??? uh, I don't recall Congress ever legislating Financial Products Div bonuses before the crisis, or George W. Bush signing anything. What on earth are you talking about?

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[1]: "Pay czar says AIG bonus flap to end in March", by David Morgan, Reuters, February 3, 2010.

So, I'll put this forward succinctly: legal personhood for corporations is not optional. It's absolutely fundamental to modern commerce. To believe otherwise, you basically have to be an anarchic anti-capitalist; indeed, you have to be against the very notion of large-scale cooperation and division of labour. But you're not, are you? – Chris MacDonald, September 27, 2009¹

Well Chris, as it happens …

MORE: The good professor is in the process of expanding his thoughts into a three-parter. He was also kind enough to reply to my effort here (see below).

• Feb 1: "The US Supreme Court, Free Speech, and Corporate Citizenship"
• Feb 2: "Free Speech: Means, Ends, and Citizens United"
• Feb 3 (UPDATE — now available): "Corporate Personhood and Citizens United"
  

First of all, thank-you for your comment (replying to mine) that served to get us started on this.  The comments were under your recent update on the issue at hand.

But before this generates into sticky-buns-at-20-paces in The Atrium, perhaps we should explore just how profoundly we disagree with each other on this issue.  I've just read your September '09 post and some of the comments underneath.  That was an early analysis of "Citizens United", and for Doomers who (like me before yesterday) weren't aware, it's now the point at issue in what's becoming perhaps the most important fight between President and US Supreme Court since 1937.

My thoughts on large corporations are strongly influenced by a 1970 polemic by Robert Townsend called "Up The Organization," and in particular his thoughts on his almost exact contemporary Harold Geneen.  It's rather curious, in that my father was one of Geneen's key engineers when he lost the confidence of Charles Adams in '59 and even today I'm constantly reminded of him because I worship Sundays with the brother of the guy who was his representative in Santiago on the occasion of 9/11 (the month Neruda died).

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I am a die hard animal lover.  The Twist household not only has the usual dogs and cats, but cows, chickens and goats as well. Oh, and one aged rabbit.  All of them are rather spoiled.  That's why tales of animals left behind or lost in foreclosure break my heart.

L sent me a link to No Paws Left Behind, which looks like a worthwhile organization.  On their about page they say:

No Paws Left Behind, Inc. is a focus driven not for profit organization, designed to bring awareness to all communities the silent victims of foreclosure who have no voice or rights to implement change.  As a united front, we will restore moral obligations toward all pets that have the potential to be, or have been, left behind to suffer needlessly.  We further pledge to act as a support group for those who find foreclosure imminent and need help to find shelter for their beloved pets; be a resource for those who find or know of abandoned pets; and last, but by no means least, we must unite to end the needless suffering by creating a national movement targeting lawmakers to change the laws categorizing pets as personal property.

Animal lovers might want to check out the website.

If you are a pet owner facing foreclosure, please take the advice of a woman I met who runs an animal rescue.  Seek help EARLY.  Shelters are full, and you can't wait until the day before the Sheriff shows up to find a place for your pet.  At that point, there is not much they can do. Read the rest of this entry »

I thought Doomers might appreciate a little humor this morning.  Mike Dawson, a V.P. at Freddie Mac had me in stitches over this one:

WASHINGTON, Feb 1 (Reuters) – The $5 trillion market for U.S. agency mortgage-backed securities should be able to weather the scheduled end of Federal Reserve purchases as value-seeking investors fill the void, a Freddie Mac executive said on Monday.

Those investors could include Freddie Mac, which has room to increase its $755 billion portfolio, Mike Dawson, a vice president of deal and contract management at Freddie Mac, told reporters at an American Securitization Forum conference.

"I don't see huge changes out there other than a little spread widening," he said, referring to yields on MBS relative to benchmark securities. Read the rest of this entry »

What is the biggest debate in the world of real estate today?  To paraphrase the Bard, To walk or not to walk, that is the question.  Interestingly, Matt Koppenheffer over at Motley Fool makes the case for not only walking away, but walking away now:

While strategic defaulters may force us to deal with increased foreclosures now, they save us from having to swallow the problem over a longer period of time.

One of the key reasons that it may make sense for some severely underwater homeowners to default is because they can't rationally hope to have equity in their home for many years to come. If circumstances dictate that these homeowners need to move, or no longer have the means to pay for their mortgage a few years down the road, they will likely still be in a position where they will have to foreclose or short-sell, rather than sell their house on the open market through the normal process.

Even if these homeowners remain in a position to pay their mortgage for years to come, the lack of equity in their home will keep them out of the homebuyer pool, even if, under normal circumstances, they'd like to move up to a larger home. These factors could help keep the housing market stumbling along for some years.

Additionally, for the housing market to truly find itself on a sustainable path, we'd need to see home prices fall back into line with historical norms. One widely used gauge of home prices involves comparing housing prices with prevailing rental rates. Between 1988 and 2000, the average home in the U.S. sold for 14.6 times the average annual rental rate. Though this multiple has fallen significantly since its high of 25 in mid-2007, it was still at 18 during the third quarter of 2009. Strategic foreclosures could help bring this multiple down further, allowing more potential buyers to be able to afford a home, and putting the market back on a sustainable path.

And though my colleagues and I have poked some fun at the extraordinarily low interest rates that the Fed has been providing for banks, this highly accommodative stance from the Fed gives the banks additional ability to absorb hits from their mortgage portfolios now. Prolonging the process risks the possibility that the banks will have to keep limping along when interest rates are not there to cushion the blow.

Finally, as one reader pointed out to me in an email, homeowners who walk away from a hefty mortgage in favor of a lower rent payment suddenly end up with more money in their pockets at the end of every month. This money can be pumped back into the economy if they decide to spend it at Wal-Mart or Costco, for instance, or it can be pumped back into the stock markets as these folks rebuild their retirement nest egg. Read the rest of this entry »

Considering a short sale in Arizona?  It pays to be careful.  M forwarded me the following information that he received, which came from a discussion with Tom Farley, CEO of the Arizona Association of Realtors. It stated:
 

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. Read the rest of this entry »