Blog on the Run: Reloaded

Monday, June 24, 2013 6:12 pm

“This is a uniquely bad time to buy a house.”

I’m not in the market, and if Mike Whitney’s reporting is accurate, you shouldn’t be, either:

… nearly 5 million homes are either seriously delinquent or in some stage of foreclosure. This unseen backlog of distressed homes makes up the so called “shadow inventory” which is still big enough to send prices plunging if even a small portion was released onto the market.   In other words, supply vastly exceeds demand in real terms. Now check this out from Zillow:

“13 million homeowners with a mortgage remain underwater. Moreover, the effective negative equity rate nationally —where the loan-to-value ratio is more than 80%, making it difficult for a homeowner to afford the down payment on another home — is 43.6% of homeowners with a mortgage.” (Zillow)

This might sound a bit confusing, but it’s crucial to understanding what’s really going on. While many people know that 13 million homeowners are underwater on their mortgages,  they probably don’t know that nearly half (43.6%) of the potential “move up” buyers (who represent the bulk of organic sales) don’t have enough equity in their homes to buy another house.  Think about that. Like we said,  housing sales depend almost entirely on two groups of buyers; firsttime homebuyers and move up buyers. Unfortunately, the number of potential move up buyers has been effectively cut in half.  It’s simply impossible for prices to keep rising with so many move up buyers on the ropes.

So, if “repeat” buyers cannot support current prices, then what about the other “demand cohort”,  that is, first-time home buyers?

It looks like demand is weak there, too. According to housing analyst Mark Hanson: “First-timer home volume hit a fresh 4-year lows last month and distressed sales 6-year lows”.

So, no help there either. First-time homebuyers are vanishing due to a number of factors, the biggest of which is the $1 trillion in student loans which is preventing debt-hobbled young people from filling the ranks of the first-time homebuyers. Given the onerous nature of these loans, which cannot be discharged through bankruptcy, many of these people will never own a home which, of course, means that demand will continue to weaken, sales will drop and prices will fall.

Now, despite these appalling numbers, he notes, foreclosures are down by a third from this time last year. Is it because the housing market is really any better? Nope. It’s because the fewer foreclosures the banks follow through on, the fewer losses they have to report, the more profitable they seem and the bigger the bonuses their executives can then claim. The technical term for this behavior is “securities fraud,” and it looks as if every major bank is involved to a greater or lesser degree.

But by all means, let’s reduce enforcement on banks and mortgage companies. Free markets! Murca, hail yeah! Who cares if millions of homeowners and would-be homeowners get hurt?

Tuesday, August 31, 2010 9:55 pm

Dead banks walking

Filed under: We're so screwed — Lex @ 9:55 pm
Tags: ,

I’ve had some things to say in the past about zombie banks and how bad they are for the economy. But, hey, what do I know? I’m just the guy who called Howard Coble out for failing to vote for the LaFalce Amendment, as a result of which the S&L bailout of the early 1990s ended up costing about four times what it would have if Coble and others had supported his fellow Republican’s put-the-S&Ls-out-of-their-misery measure and Coble himself admitted he’d screwed up.

But you know who’s saying bad things about zombie banks now? Those silly liberals at American Banker:

… no stage of the [foreclosure] process has returned to pre-September 2008 levels. That is when the Treasury unveiled the Troubled Asset Relief Program and promised to help financial institutions avoid liquidating assets at panic-driven prices. The Financial Accounting Standards Board and other authorities followed suit with fair-value dispensations.

These changes made it easier to avoid fire-sale marks — and less attractive to foreclose on bad assets and unload them at market clearing prices. In California, ForeclosureRadar data shows, the volume of foreclosure filings has never returned to the levels they had reached before government intervention gave servicers breathing room.

Some servicing executives acknowledged that stalling on foreclosures will cause worse pain in the future — and that the reckoning may be almost here.

“The industry as a whole got into a panic mode and was worried about all these loans going into foreclosure and driving prices down, so they got all these programs, started Hamp and internal mods and short sales,” said John Marecki, vice president of East Coast foreclosure operations for Prommis Solutions, an Atlanta company that provides foreclosure processing services. Until recently, he was senior vice president of default administration at Flagstar Bank in Troy, Mich. “Now they’re looking at this, how they held off and they’re getting to the point where maybe they made a mistake in that realm.”

Duh. Ya think?

And, honestly, if it were just banksters getting hurt, that would be one thing. But you know who’s going to pay for this: homeowners, and you and I whether we own homes or not.

Delayed foreclosures might be good news for delinquent borrowers, but it comes at a high price.

Stagnant foreclosures likely contributed to the abysmal July home sales, since banks are putting fewer homes for sale at market-clearing prices.

Moreover, Freddie says a good 14% of homes that are seriously delinquent are vacant. In such circumstances, eventual recovery values rapidly deteriorate.


Sunday, June 20, 2010 11:43 pm

Foreclosing on foreclosure

Filed under: Evil,I want my money back. — Lex @ 11:43 pm
Tags: , ,

One obvious potential problem with the “securitization” — the packaging of mortages and selling them as financial instruments — is: Who really owns the mortgaged property?

Oddly enough, a lot of judges want to know and are not entertaining kindly attempts by banks to fudge their answers:

The backlash is intensifying against banks and mortgage servicers that try to foreclose on homes without all their ducks in a row.

Because the notes were often sold and resold during the boom years, many financial companies lost track of the documents. Now, legal officials are accusing companies of forging the documents needed to reclaim the properties.

On Monday, the Florida Attorney General’s Office said it was investigating the use of “bogus assignment” documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And last week a state judge in Florida ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times.

“Mortgage assignments are being created out of whole cloth just for the purposes of showing a transfer from one entity to another,” said James Kowalski Jr., an attorney in Jacksonville, Fla., who represents the borrower in the M&T case.

Now, I should point out that I am not arguing that lien holders shouldn’t be paid what they’re owed. But I’ll argue all day that if property “owners” have to have their paperwork in a row, so should lien holders.

Cynthia Kouril of Firedoglake comments:

You know, if banks had just dealt honestly with people about modifying the mortgages to reset the principle [sic] to reflect the post bubble value of those houses, and the post bailout interest rate, a whole slew of home owners could have been kept in their homes, with a payment they could afford. By doing this, using the money that the TAXPAYERS gave them for this very purpose –Hello, remember TARP?—housing prices would have stabilized, neighborhoods would not be in freefall and bankers, and the investors in those mortgage backed securities, would be enjoying a steady stream of income for years to come. The pittance they will get for the house at foreclosure auction is a tiny fraction of the amount they would have collected over the life of those modified mortgages.

That’s the point nobody wants to talk about now: TARP was intended to help banks extend credit, keep home owners in their homes and write down the values of the bubble-priced assets on their books without having to go bankrupt. But, of course, the money came with no regulatory or oversight strings attached, as federal money always seems to do when it’s going to corporations, and so the money went elsewhere, like proprietary trading and executive bonuses.

Moreover, when the emphasis changed from originating profitable mortages to originating mortages, period, collecting the origination fees and then selling them just as fast as possible, any idiot could have told you what was going to happen:

What really gets me, is the audacity of the greed. The entire system is set up to generate fees, rather than income from the repayment of the mortgages. So, not only is the homeowner suffering, but the municipalities and pension funds that foolishly invested in those mortgage backed securities are losing, too, because the trustees and others who owe them a fiduciary duty are ripping them off for more servicing fees and foreclosure costs instead of taking proper steps to secure an ongoing, though somewhat diminished, income stream.

Those of you who are fond of Big Questions might like to ponder this one: Why does no one take his fiduciary responsibilities seriously anymore? And this one: Why are there no serious real-life consequences for breach of fiduciary responsibility?

Friday, June 4, 2010 8:22 pm

Noted without comment: Foreclosure filings, etc.

Filed under: We're so screwed — Lex @ 8:22 pm

The Awl:

Monday, December 28, 2009 9:09 pm

Odds and ends for 12/27

Hmm, what else can we screw up in a way that screws poor people worst? Hey, I know! The estate tax!

John Fox can have another year if he wants: So say the Panthers, although they’re not talking any kind of contract extension with him now (he has a year left). I have mixed feelings about this, upon which I’ll elaborate in a separate post.

Utterly un-self-aware: Jonah Goldberg presumes to pass judgment on someone else’s competence.

Utterly un-self-aware, cont.: Before Republicans criticize Democrats on national-security issues, they need to take a few history lessons, starting with the 9/11 commission report.

Related memo to Joe Lieberman, on the off-chance that he can read: How ’bout before we start a third war, let’s take a minute and figure out how this would-be airplane bomber got a visa? (Newsweek offers the strong beginning of an explanation.) Because the purview of the Senate Homeland Security Committee you chair does not extend to foreign policy or strategic (let alone tactical) military planning. You ass.

At least one legitimate criticism can be leveled at the Department of Homeland Security, and John Cole levels it.

One thing liberals applaud Obama on: Tightening restrictions not only on lobbying, but also on when and how ex-industry officials can go to work for the government, so that agencies aren’t “captured” by the companies they’re supposed to regulate. Watch that change get undone the second a Republican retakes the White House.

Which is fine, except that I haven’t heard them come up with an alternative solution to the problem: Blue Dogs Bayh, Landrieu and Conrad say cap ‘n’ trade is DOA. Relatedly, chemicals from power plants in their states are killing trees in the mountains of mine.

Your tax dollars at work: Despite the recent removal of caps on taxpayer assistance to Fannie and Freddie, which already totals $111 billion, they’re resuming foreclosures next week. You’re welcome, guys.

Not just no, but, hell, no: Not content to throw women’s rights under the health-care bus, the evangelistas are now trying to get the failed policy of abstinence-only sex education incorporated into health-care reform. Guys, we tried your flavor of Teh Stoopid once already and got a big jump in unwed pregnancy to show for it. Go. Away.

Tremors: The last time Iran got this shaky, the Shah was ousted. That may or may not mean the current regime will fall. But it almost certainly means blood in the streets, much of it likely innocent. Great.

Antiterrorism 101, which means most current and former government officials probably haven’t read it: Spencer Ackerman: “It’s never sufficient just to observe that a terrorist group has a presence in Country X. We have to ask ourselves: what are the conditions that allowed for said terrorist group to take root? If we don’t, we simply can’t devise an effective strategy against the terrorist group; and we come close to guaranteeing that we’ll flail and make the situation worse.”

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