Archive for the ‘foreclosures’ Category
Posted by Larry Doyle on August 17th, 2010 12:12 PM |
With the Conference on The Future of Housing Finance being held in Washington today, do we really expect the government to propose anything that may help support or fix our system of housing finance? I am not optimistic and I am an optimist by nature. I am a big believer in unleashing the power and strength of entrepreneurial minds to address our problems. Why haven’t these minds developed solutions? Do you think that these minds are stifled by the overwhelming presence of Uncle Sam? I do. Back to housing and entrepreneurial spirits.
I love when Sense on Cents can provide fertile ground for the free and open exchange of ideas, opinions, thoughts, and analysis on critically important issues of the day. I am deeply grateful when people not only comment here at Sense on Cents but I encourage people to provide written commentary. I can not promise that I will run every commentary that is submitted but I will seriously review and consider running those that I believe are deserving of greater exposure. I appreciate your allowing me to make those judgments. Plus ….it is my blog.
I have always maintained that jobs and housing are the two great linchpins upon which our economy rests. The government has thrown hundreds of billions of dollars at our housing crisis with no meaningful success….all reports aside. What can be done to solve the foreclosure crisis weighing on our housing market, our economy, and ultimately our nation? (more…)
Tags: Conference on the Future of Housing Finance, equity warrants, foreclosures, GIM, Greenwich Investment Management, home equity, home equity warrants, Housing Crisis, how to stop foreclosures, how to support housing, Larry Doyle, Mortgage Crisis, no cost housing stimulus, proposed solution for foreclosures, reducing the number of foreclosures, Sense on Cents, solution for foreclosure crisis, support for those with negative equity, support for underwater homeowners
Posted in General, foreclosures | 22 Comments »
Posted by senseoncents on February 26th, 2010 10:57 AM |
Great minds think alike. On the heels of my initial morning commentary regarding my belief that housing will remain under pressure, my friends at 12th Street Capital shared a recently released report from Moody’s on the residential mortgage market.
What does Moody’s see? A foreclosure bubble. Ouch!!
Moody’s writes:
HAMP, Moratoriums, and Court Delays Expand Foreclosure Bubble: >>>>> (more…)
Tags: and Court Delays Expand Foreclosure Bubble, HAFA, HAMP, Home Affordable Foreclosure Alternative, housing inventory, Moody's, Moody's report on housing, Moody's report on mortgages, Moratoriums, mortgage defaults, mortgage delinquencies, mortgage foreclosures
Posted in General, foreclosures | No Comments »
Posted by Larry Doyle on October 13th, 2009 2:40 PM |
Despite hundreds of billions of dollars in support of Freddie Mac, Fannie Mae, the Federal Housing Association, and mortgage modifications, our housing market continues to be swamped with an ever increasing wave of foreclosures. The shadow supply of homes overhanging the market is estimated to be in the realm of 15 month’s worth. Last week, I wrote that Washington needed to address this issue in my post “Washington Needs a New Housing Model.”
Thanks to our friends at 12th Street Capital, we learn today that Treasury will release a new plan next week to stem the wave of foreclosures. How might this work? Let’s navigate a release which came from the Mortgage Banker’s Association convention currently ongoing in San Diego. Housing Wire reports, Treasury to Announce New Program to Avoid Foreclosure:
The United States Department of the Treasury is launching, with an official announcement expected next week, a new program to help ailing borrowers escape foreclosure.
The Chief of the Homeowner Preservation Office at the Treasury, Laurie Maggiano, released information on the Home Affordable Foreclosure Alternatives (HAFA) while speaking at the MBA’s 96th Annual Convention going on in San Diego. The official launch is expected in the next week or so.
HAFA already holds the support of Fannie, according to a VP at the agency, Eric Schuppenhauer, who believes the new program allows borrowers in imminent default to “make a graceful exit” from their home. HAFA will keep the stigma associated with foreclosure away from the borrowers, he added, and help keep communities intact.
Maggiano adds that HAFA will offer financial incentives to both servicers and borrowers, and associated secondary investors, in order to facilitate a short sale or deed in lieu of the property.
Borrowers will need to be Home Affordable Modification Program (HAMP)-eligible and Maggiano released some stats for the crowd’s consumption. 2,484,783 homeowners have requested information on HAMP. 757,955 HAMP plans were offered. 487,081 trials are underway.
Other additional [1] incentives to the short sale industry are nearly developed. The IRS will soon offer a 4506EZ form that will enable servicers to pre-fill out the information so that it only requires a borrower’s signature. It also will include softer language so as not put potential participants off.
For those unaware, a “short sale” entails a home being sold for less than the balance of the mortgage. The homeowner is not held responsible or liable for making up the difference between the proceeds generated by the sale and the mortgage balance. That difference is eaten by whomever ‘owns’ or is holding the mortgage. The owner or holder could be the originator if that entity never sold the mortgage. The owner or holder could be a trust on behalf of investors if the loan had been securitized.
What is the motivation to promote short sales rather than allowing the foreclosure process to run its course? Short sales may be short in terms of proceeds although they are not necessarily short in terms of time. That said, short sales typically do expedite the sale of a home. Short sales have typically occurred at a 10-20% discount to the market. Why? The homes have not been prepared for sale, meaning ‘dressed up.’
The monetary incentive provided to mortgage servicers to promote short sales will likely have a similar impact as the monetary incentive provided to modify mortgages. What has that impact been? Not much.
While many of Uncle Sam’s programs have been designed to buy time and allow the market and economy to recover, that approach has proven not to work so far in housing. Will this short sale program work to support housing? I doubt it.
I think what this program will look to achieve is to actually lessen the negative stigma associated with the term foreclosure. If Uncle Sam can say foreclosures are declining, he can then wave the flag as making progress on housing. What he will be doing, however, is merely ‘redefining’ foreclosure or in other words, ‘putting perfume on a pig.’
This program theoretically will negatively impact bank capital as banks will be forced to take a loss sooner rather than later on those mortgages they hold which are involved in short sales.
Aside from that development, real integrity in this process would include:
>> Add short sales to foreclosures as a more robust measure of housing supply stemming from delinquent mortgages.
>> Assess home prices along with rental rates to measure overall cost of housing.
LD
Tags: 12th Street Capital, Eric Schuppenhauer, foreclosures, HAFA, HAMP, Home Affordable Foreclosure Alternative, Home Affordable Modification Program, housing, housing supply, Housing Wire, Laurie Maggiano, MBA, Mortgage Bankers Association, mortgage delinquencies, mortgage modification, Mortgages, short sales, Treasury, Treasury to Announce New program to Avoid Foreclosures, Washington's housing policy
Posted in Banking Institutions, General, Housing Crisis, Moral Hazard, Mortgage Cram-Down, Mortgage Crisis, Wall Street, foreclosures, refinancing | No Comments »
Posted by Larry Doyle on October 8th, 2009 12:04 PM |
Traders, strategists, analysts, economists, and politicians will always review models of past behaviors in an attempt to forecast future developments. In the process, the models are only as robust as the inputs. Many of the aforementioned individuals will become overly dependent on models. The risk in that process is that the models ‘work until they don’t work.’ As a result, programs, policies, and procedures are implemented that perhaps exacerbate rather than amend a situation. I believe this scenario is playing out in our housing market.
The breakdown in Washington’s housing model revolves around the newly developed phenomena known as “strategic mortgage defaults.” I highlighted this topic a few weeks back in writing, “Strategic Mortgage Defaults Have Major Implications for Markets and Economy.” We see more evidence of this new extension on our housing model in a report released by Reuters, The Flood of Foreclosures Shows No Sign of Ebbing:
The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year.
That spillover effect from foreclosures is one reason why Celia Chen of Moody’s Economy.com says nationwide home prices won’t regain the peak levels they reached in 2006 until 2020.
In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted.
“The default rates, the delinquency rates, are still rising,” Chen told Reuters. “Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase,” she added.
Anyone doubting that the recovery in U.S. real estate prices will be long and hard should take a look at Japan, Chen said.
Prices there are still off about 50 percent from the peak they hit 15 years ago.
(more…)
Tags: 12th Street Capital, California housing market, Celia Chen of Moody's Economy.com, Center for Responsible Lending, defaults, delinquencies, Financial trust Index, Florida housing market, foreclosures, home prices, home values, housing, housing market, housing models, Japan economy vs United States economy, joblessness, Luigi Guiso, Luigi Zingales, Moral and Social Restraint to Strategic Mortgage Defaults, Paola Sapienza, property values, strategic mortgage defaults, The Flood of Foreclosures Shows No Signs of Ebbing, Unemployment
Posted in Economy, General, Housing Crisis, Wall Street, foreclosures, markets, regulation | 1 Comment »
Posted by Larry Doyle on September 21st, 2009 11:29 AM |
The Brave New World of the Uncle Sam economy has brought our economy and markets into realms very rarely seen or experienced. One of those realms which has received very little coverage, but will have major implications for the economy and markets going forward, is “strategic mortgage defaults.” What are strategic mortgage defaults and what will be the growing impact of this phenomena? Let’s navigate.
High five to KD of 12th Street Capital for bringing this development to our attention. The Los Angeles Times profiles this very troubling slope on our economic landscape in writing, Homeowners Who ‘Strategically Default’ on Loans a Growing Problem:
With foreclosures, delinquencies and loan losses at record levels, strategic defaults and walkaways are among the hottest subjects in residential real estate finance. Unlike in earlier academic studies, Experian and Wyman could tap into credit files over extended periods to identify patterns associated with strategic defaults.
The number of strategic defaults is far beyond most industry estimates — 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year’s fourth quarter.
Strategic mortgage defaults are nothing more than a very calculated financial maneuver primarily by people with high credit scores. These people are literally walking away from their homes – and the mortgages on those homes – with little to no warning or indication of stress typically identified by increased delinquencies on the mortgage payment or other credit payments.
Why are people doing this? To fully understand the reasoning behind people strategically defaulting, we need to understand why people bought these homes and took out these mortgages in the first place. Over the last decade, many people purchased homes, including their primary residence, for investment purposes as much as for shelter and protection. As with other investments, these high credit and financially savvy people are assessing the market value of their home relative to their carrying costs (mortgage payments, taxes, utilities, etc) and making the decision that they are financially better off walking away from the property and mortgage than continuing to make the payments.
Is there a moral failure in this practice, especially on behalf of those individuals who do have the financial wherewithal to make their payments? Perhaps, but we should not kid ourselves that people bring their morals – or lack thereof – into their financial affairs. (more…)
Tags: 12th Street Capital profiles growing strategic mortgage defaults, are peopel better to walk away from homes and mortgages, did Bank Stress tests incorporate strategic mortgage defaults into models, Experian and Wyman can not identify likelihood of strategic mortgage defaults, HELOC losses, high credit scores and strategic mortgage defaults, home values relative to carrying costs, Homeowners Who Strategically Default on Loans a Growing Problem in Los Angeles Times, housing, impact of strategic mortgage defaults, is there a moral failure in strategically defaulting on mortgage, peopel who purchased homes more as investments than for shelter and protection, strategic mortgage defaults, vicious cycle of housing both on way up and down, waht are strategic mortgage defualts, was likelihood of strategic mortgage defaults factored into loan process and underwriting, what will strategic mortgage defaults mean for housing economy and markets, where will strategic mortgage defaults be felt, who loses on strategic mortgage defaults, why are people strategically defaulting on mortgages
Posted in General, Home Loan, Housing Crisis, Mortgage Crisis, Mortgages, foreclosures, helocs | 11 Comments »
Posted by Larry Doyle on September 3rd, 2009 12:22 PM |
What happens when a bank forecloses on a home? It has to book a loss. How are banks dealing with the rapidly increasing rates of delinquencies and subsequent foreclosures? They are forestalling the losses by allowing homeowners to remain in the home for a protracted period. Are they doing this out of generosity? Don’t be that naive. The banks are utilizing the ‘hope’ hedge. That is, they ‘hope’ the economy and housing market will rebound so the values of these homes increase and the loss is mitigated.
Over many years of trading and investing, the ‘hope’ hedge is a recipe for further losses. Why? Please refer to my Rule #1 from yesterday’s “LD’s Rules of Trading”: The Market Goes in the Direction Which Hurts the Most People.
Homes that would otherwise be in foreclosure create a massive overhang of supply in the shadow housing inventory. Do banks believe that buyers do not appreciate this? That would be even more naive. The excess supply will keep a lid on home prices and consumer wealth which directly impacts retail sales.
High five to MC for sharing a recent report from American Banker addressing this phenomena. Kate Berry writes Postponing the Day of Reckoning, which I am able to access from Bank Investment Consultant. Ms. Berry shares some very sobering insights:
“The goal is to hold off on foreclosures and take losses as slowly as possible to keep balance sheets up,” said Deborah Voelz, the chief financial officer of National Asset Direct Inc., a New York buyer and servicer of distressed loans. “Everyone is looking at what the ultimate loss is going to be and whether it makes sense to hold off another year or two and mitigate the results.”
The foreclosure process — and it is a process — now takes, on average, 18 months to two years, up from 15 months a year ago, according to Amherst Securities Group LP. Backlogs in county courts and at servicing companies, along with local government moratoriums, have contributed to the delays. But plenty of signs indicate that the mortgage companies themselves are in no hurry to seize their collateral.
Rick Sharga, a senior vice president at RealtyTrac Inc., an Irvine, Calif., company that monitors foreclosure filings, said banks often start proceedings but then decide “they don’t want the property” and suspend the process indefinitely.
Of the 2.3 million homes that received foreclosure notices last year, one-third had been repossessed by yearend, according to RealtyTrac.
Banks also “are allowing borrowers to be delinquent for longer and longer periods of time before initiating foreclosures,” Sharga said.
These perspectives are totally consistent with those of John Lounsbury, my guest this past Sunday on NQR’s Sense on Cents with Larry Doyle. John pointedly detailed that only 10% of homes being sold currently entail ‘willing sellers.’
What are the implications for this forestalling?
>> Continued pressure on housing overall.
>> Continued pressure on bank earnings from these mortgages.
>> Continued underwhelming trends in retail sales by consumers.
>> Prospective home buyers, especially in the higher price ranges, can remain patient.
Regardless of what bank analysts or others may want to say, these forestalled homes are not going away.
LD
Tags: Amherst Securities comments on housing overhang, bank foreclosures, banks are postponing foreclosures, banks are using hope hedge, banks hope economy and housing rebounds, Deborah Voelz of National Asset Direct comments on housing supply, forestalled homes v foreclosed homes, hope is a lousy hedge, housing, housing supply impacts consumer retail sales, impact of overhang of housing supply, John Lounsbury comments on willing home sellers, Kate Berry Postponing the Day of Reckoning, market goes in direction which hurts most people, Rick Sharga comments on housing supply and foreclosure process, shadow inventory of homes, supply of homes, supply overhang of homes, what is hope hedge, why are banks postponing foreclosures
Posted in General, Housing Crisis, foreclosures | 3 Comments »
Posted by Larry Doyle on August 13th, 2009 8:22 AM |
Can we truly expect our economy to return to LONG-TERM health if the housing market remains under severe pressure? I think not. While Wall Street rebounds, Main Street continues to lose value. How so? Home foreclosures continue to run at breakneck speed.
Bloomberg reports, U.S. Foreclosure Filings Set Third Record-High in Five Months:
Foreclosure filings in the U.S. climbed to a record for the third time in five months in July as falling home prices and the recession left more homeowners unable to keep up payments or refinance.
A total of 360,149 properties received a default or auction notice or were seized last month, according to data seller RealtyTrac Inc. One in 355 households got a filing, the highest monthly rate in RealtyTrac records dating to January 2005, the Irvine, California-based company said in a statement.
“We’re in a deep hole,” Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., said in an interview. “There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy.”
What is this ongoing foreclosure activity doing to home prices? It’s not good.
The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter, the most in records dating to 1979, the National Association of Realtors said yesterday. Almost one-quarter of U.S. mortgage holders are underwater, property data firm Zillow.com said Aug. 11.
What about the mortgage modification programs which were designed to stem this tide of foreclosures? In speaking with our friends at 12th Street Capital, who have canvassed a number of the large mortgage servicing operations, we have learned that successful mortgage modifications are typically only occurring with mortgages that are delinquent 30 days or less. After that, homeowners are increasingly inclined to ‘walk away’ from homes which are further underwater (mortgage balance exceeds home value). In fact, Bloomberg highlights:
“It has been more profitable to put a home in foreclosure than restructure the loan,” Swonk said. “The only thing that helps is forgiveness of principal, and there is little willingness to do that.”
The greatest surge in foreclosure activity remains in those states which have already experienced enormous problems. The top 5 being Nevada, California, Arizona, Florida, and Utah. That said, our entire economy is intricately linked and these markets (especially California) cover a large percentage of our population.
What are the implications for this ongoing foreclosure activity? (more…)
Tags: 12th Street Capital canvassing mortgage servicers, Diane Swonk comments on home foreclosures, foreclosures will keep credit very tight, foreclosures will keep new issue securitization markets quiet, foreclosures will keep retail sales under pressure, foreclosures will mean inventories will not be rebuilt, foreclosures will mean property taxes will decline, foreclosures will negatively impact asset values of securities and investments, foreclosures willlea dto service cuts and higher taxes, future of economy, health of housing market, home foreclosures surge, home prices declining, housing, how many homeowners are underwater, implications and effects of mortgage foreclosure activity, long-term health of economy, National Association of Realtors report on home prices, pace of home foreclosures, pace of mortgage modifications, RealtyTrac Inc. report on foreclosures, retail sales report August 13 2009, top states for mortgage foreclosures, U.S. foreclosure Filings Set Third record-High in Five Months, Wall street rebounds Main Street loses value, what does underwater mean on a home mortgage, willingness to forgive mortgage principal, Zillow.com report on home prices
Posted in General, Housing Crisis, foreclosures | 6 Comments »
Posted by Larry Doyle on June 26th, 2009 8:30 AM |
What kid doesn’t get frustrated with his father who dictates a line of reasoning with the tried and true, “because I said so.”
In similar fashion, the public at large should be equally frustrated with economists, market analysts, and the media who continually promote ‘unemployment’ as a lagging indicator. The simple fact is in the Brave New World of the Uncle Sam economy, I believe we should question the definitions and impacts of all our economic inputs. Today, let’s dive into the all important unemployment statistics.
Recall that under the most adverse scenario of the Bank Stress Tests, the unemployment rate was assumed to top out at 10.3%. Well, do not be surprised if we reach that rate by Labor Day with a strong chance we see 11% by year end. Last week, Obama himself acceded to likely double digit unemployment. Warren Buffett predicted as much in an interview aired yesterday.
The financial industry and government officials play down these statistics by stating that unemployment lags the economy. I beg to differ!! The Wall Street Journal provides strong evidence why unemployment is the preeminent leading economic indicator in writing, Unemployment Vexes Foreclosure Plan:
Rising unemployment is complicating the Obama administration’s effort to reduce foreclosures and stabilize the housing market.
The first wave of mortgage delinquencies was sparked by borrowers who took out subprime mortgages and other risky loans that became unaffordable, causing them to fall behind on their monthly payments. But the current wave is increasingly driven by unemployment or underemployment, economists and housing counselors say.
The Obama foreclosure-prevention plan was “built around the subprime crisis model, not the unemployment crisis model,” said Michael van Zalingen, director of homeownership services for the nonprofit Neighborhood Housing Services of Chicago.
The Obama program provides financial incentives to mortgage-servicing companies and investors to reduce mortgage-related payments to 31% of monthly income.
But many borrowers don’t have sufficient income to qualify for a loan modification under the plan. Mr. van Zalingen said roughly 45% of the more than 900 borrowers who sought help at two recent counseling events would fall into that category even if their interest rate were dropped to 2% and their loan term were extended to 40 years.
I wrote “The Most Critical Economic Statistic” a month ago to highlight the importance of mortgage delinquencies. There is a very strong correlation between unemployment, delinquencies, foreclosures, and subsequent defaults on credit cards and other personal debts.
The Obama administration and all of Washington are increasingly concerned–with good reason–about the impact of increasing unemployment and underemployment, which currently sits at 16.4% and may very well get to 20%!!
What might Washington do? When in doubt, throw more money at it. The WSJ highlights how and where that money may be delivered: (more…)
Tags: Bank Stress Tests and unemployment, borrowers not qualifying for loan modification, data on mortgage delinquencies, forbearance plan for mortgages, housing, how is underemployment measured, how will Obama stem foreclosures, how would forbearance plan work, impact of higher unemployment on economy, incentives for mortgage servicers, increasing mortgage delinquencies, is unemployment a lagging indicator, is unemployment a leading indicator, loan modification programs, Michael van Zalingen, rising mortgage delinquencies, rising unemployment and rising foreclosures, Seth Wheeler, should government pay mortgages, socialized housing program, The Most Critical Economic Statistic, Unemployment, unemployment impact on economy, unemployment rate in Bank Stress tests, unemployment underemployment and rising foreclosures, Unemployment Vexes Foreclosure Plan, Wall Streeet calls unemployment lagging indicator, what is a lagging indicator, what is underemployment, will higher unemployment slow economy
Posted in General, Unemployment, foreclosures | No Comments »
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Banks Are Forestalling Rather Than Foreclosing
Posted by Larry Doyle on September 3rd, 2009 12:22 PM |
What happens when a bank forecloses on a home? It has to book a loss. How are banks dealing with the rapidly increasing rates of delinquencies and subsequent foreclosures? They are forestalling the losses by allowing homeowners to remain in the home for a protracted period. Are they doing this out of generosity? Don’t be that naive. The banks are utilizing the ‘hope’ hedge. That is, they ‘hope’ the economy and housing market will rebound so the values of these homes increase and the loss is mitigated.
Over many years of trading and investing, the ‘hope’ hedge is a recipe for further losses. Why? Please refer to my Rule #1 from yesterday’s “LD’s Rules of Trading”: The Market Goes in the Direction Which Hurts the Most People.
Homes that would otherwise be in foreclosure create a massive overhang of supply in the shadow housing inventory. Do banks believe that buyers do not appreciate this? That would be even more naive. The excess supply will keep a lid on home prices and consumer wealth which directly impacts retail sales.
High five to MC for sharing a recent report from American Banker addressing this phenomena. Kate Berry writes Postponing the Day of Reckoning, which I am able to access from Bank Investment Consultant. Ms. Berry shares some very sobering insights:
These perspectives are totally consistent with those of John Lounsbury, my guest this past Sunday on NQR’s Sense on Cents with Larry Doyle. John pointedly detailed that only 10% of homes being sold currently entail ‘willing sellers.’
What are the implications for this forestalling?
>> Continued pressure on housing overall.
>> Continued pressure on bank earnings from these mortgages.
>> Continued underwhelming trends in retail sales by consumers.
>> Prospective home buyers, especially in the higher price ranges, can remain patient.
Regardless of what bank analysts or others may want to say, these forestalled homes are not going away.
LD
Tags: Amherst Securities comments on housing overhang, bank foreclosures, banks are postponing foreclosures, banks are using hope hedge, banks hope economy and housing rebounds, Deborah Voelz of National Asset Direct comments on housing supply, forestalled homes v foreclosed homes, hope is a lousy hedge, housing, housing supply impacts consumer retail sales, impact of overhang of housing supply, John Lounsbury comments on willing home sellers, Kate Berry Postponing the Day of Reckoning, market goes in direction which hurts most people, Rick Sharga comments on housing supply and foreclosure process, shadow inventory of homes, supply of homes, supply overhang of homes, what is hope hedge, why are banks postponing foreclosures
Posted in General, Housing Crisis, foreclosures | 3 Comments »