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Posts Tagged ‘mortgage defaults’

Fannie and Freddie: The Legacy of Washington’s Financial Illiterates

Posted by Larry Doyle on June 14th, 2010 8:54 AM |

When the day of reckoning comes, the record will show that those misguided, incompetent and reckless legislators who supported and were supported by the house of cards known as Fannie Mae and Freddie Mac will have cost our nation untold hundreds of billions of dollars. In fact, the losses attributed to these organizations may ultimately cross the trillion dollar threshold. Think about that for a second.

While Franklin Raines, Leland Brendsel, Daniel Mudd, and other Fannie and Freddie execs walked out the door with tens of millions of dollars, our nation is left with a financial sinkhole that will serve as a drag on our economy for years if not generations. How and why did this happen? (more…)

Lew Ranieri: Housing Recovery Is Years Away

Posted by Larry Doyle on April 29th, 2010 3:34 PM |

Despite all reports to the contrary, markets in general and housing in particular are ultimately a function of supply and demand. On that note, why isn’t the housing market poised to truly do better anytime soon? The overhang of housing supply due to ongoing strategic mortgage defaults is increasing. These strategic mortgage defaults are much more a factor in the prime-Jumbo market segment than the conforming or sub-prime mortgage market. (more…)

Moody’s Sees Foreclosure Bubble

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…)

Why Housing Will Remain Under Pressure

Posted by Larry Doyle on February 16th, 2010 6:56 AM |

I have maintained and continue to maintain that unless and until we see a measurable decline in mortgage delinquencies, we will not truly experience a measurable turn in the tide for housing overall.

In this same vein, new studies project that measures taken to aid delinquent borrowers and to stem the tide of foreclosures are nothing more than fingers in the dike. These measures are merely temporarily holding back a new and eventual wave of foreclosures.

The Wall Street Journal highlights these new studies this morning in writing, Foreclosures Seen Still Hitting Prices:

[HOUSING]

More waves of foreclosures will keep downward pressure on home prices in parts of the U.S. over the next several years, two new studies project.

The studies—by John Burns Real Estate Consulting Inc. and Standard & Poor’s Financial Services LLC—both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure.

The Treasury Department is expected to give its latest update this week on government efforts to avert foreclosures. (more…)

Have Mortgage Delinquencies Peaked?

Posted by Larry Doyle on December 8th, 2009 9:43 AM |

This past May, I designated mortgage delinquencies as “The Most Critical Economic Statistic.” I wrote then and continue to believe now:

Which economic statistic is the most important? Unemployment? Housing starts? Trade deficit? Inflation? Retail sales?

Well, they are all important . . . but as I review the many statistics, the economic data that I believe most significant are loan delinquencies.

While assorted analysts and economists have called the bottom in housing numerous times, rest assured a true bottom will not be established until we see a meaningful decline in mortgage delinquencies. Why? There is a strong correlation between delinquencies, defaults, and foreclosures. Until delinquencies decline, the supply of homes coming onto the market through the foreclosure process will not abate.

While analysts and economists have been wrong in their calls to this point, I keep my eyes and ears open when another entity calls a peak in the rate of delinquencies. I witnessed another one again this morning.   (more…)

Gaming Housing Statistics or Time Reveals Truth

Posted by Larry Doyle on November 18th, 2009 10:46 AM |

Time reveals truth.

I love that pearl of wisdom shared by Danielle Park, my guest this past Sunday evening on No Quarter Radio’s Sense on Cents with Larry Doyle. I find it very applicable to the economic report released this morning on housing starts. What did that report indicate? Housing starts in October registered a supposed surprising decline of 10.6% to a seasonally adjusted 529, 000 annual rate.

Is this truly a surprise? Market analysts and government pundits who continually ‘oversell’ economic data as legitimate, when in fact that data is gamed via government props, need to show surprise when a report disappoints. If they do not act surprised, then they merely expose themselves and lose credibility.

The simple fact is the housing market in our country remains in decline. One merely needs to look at the continually increasing levels of delinquencies to understand that. I addressed this important data last May in writing, “The Most Critical Economic Statistic”:

Which economic statistic is the most important? Unemployment? Housing starts? Trade deficit? Inflation? Retail sales?

Well, they are all important . . . but as I review the many statistics, the economic data that I believe most significant are loan delinquencies. Now, mind you a delinquency does not mean that the loan has defaulted and been foreclosed upon. A delinquency is merely a late payment. Typically loans are classified as 30 day, 60 day, or 90 day delinquent. There is a very high correlation between delinquent loans and those that default. (more…)

Housing’s Catch-22

Posted by Larry Doyle on October 12th, 2009 9:28 AM |

What is the optimal policy to deal with our ongoing housing crisis? Should Uncle Sam  continue to throw more money at mortgage modifications? Should banks be compelled to implement a principal reduction program? Should Uncle Sam step in and subsidize the principal writedown involved in a principal reduction program? Would that be the mother of all socialized housing programs? Let’s navigate and address these topics knowing full well that none of these questions have any easy answers.

I witness further evidence again this morning of a continued increase in home foreclosures amidst the prime mortgage space. The Wall Street Journal highlights this ongoing development in writing, Foreclosures Grow in Housing Market’s Top Tiers:

The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.

[Moving Up chart]

Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.

The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.

Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.

Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn’t expect to see foreclosure volumes level off until later in 2010. (LD’s emphasis)

With the waves of foreclosures not abating, Uncle Sam’s plans to merely modify mortgages is proving largely insignificant in supporting the overall housing market. Homeowners are clearly showing a strong inclination to default on their mortgages when they are ‘underwater.’ Thus, how does Uncle Sam help people get ‘above water?’ Compel banks to reduce the principal balance of the mortgage. Will they do it? Not quickly, as a principal reduction would imply an immediate hit to the banks’ capital. (more…)

Elizabeth Warren Highlights Washington’s Losing Battle on Housing

Posted by Larry Doyle on October 9th, 2009 9:21 AM |

Who in Washington will give you a straight answer? Elizabeth Warren.

Who is Elizabeth Warren? Her Wikipedia bio reads:

Elizabeth Warren

Elizabeth Warren

Elizabeth Warren (born 1949) is the Leo Gottlieb Professor of Law at Harvard Law School, where she teaches contract law, bankruptcy, and commercial law. In the wake of the 2008-9 financial crisis, she has also become the chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout, formally known as the Troubled Assets Relief Program. In 2007, she first developed the idea to create a new Consumer Financial Protection Agency, which President Barack Obama, Christopher Dodd, and Barney Frank are now advocating as part of their financial regulatory reform proposals.

In May 2009, Warren was named one of Time Magazine’s 100 Most Influential People in the World.

Ms. Warren consistently takes no prisoners or provides no pandering in making honest assessments of the interaction between Washington and Wall Street. She has called the banks on the carpet. She has called Secretary Geithner on the carpet. She has called Congress on the carpet. Why? A general lack of honesty, integrity, and transparency in dealing with the American public.

When she speaks, I listen.

What did she have to say this morning? In commenting on a recently released report on the effectiveness of government programs to support housing, Warren questioned the scalability and the permanence of the impact of the TARP funding. Bloomberg provides further color in writing TARP Oversight Group Says Treasury Mortgage Plan Not Effective. The report highlights:

“Rising unemployment, generally flat or even falling home prices and impending mortgage-rate resets threaten to cast millions more out of their homes,” the report said. “The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures and consider whether new programs or program enhancements could be adopted.”

New programs or program enhancements? Yesterday I opined “Washington Needs a New Housing Model” and wrote:

While the administration swims upstream on this issue, bank policy of tight credit and restrictive lending only further exacerbates the housing market. Make no mistake, though, banks are taking that approach to tight credit at the behest of regulators who know the level of losses in the banking system and are trying to preserve the industry as a whole.

I like a rallying equity market as much as anybody, but I wouldn’t spend any paper gains just yet. Why? The new housing model is displaying that:

“As defaults become more common, the social stigma attached with defaulting will likely be reduced, especially if there continues to be few repercussions for people who walk away from their loans,” concluded Sapienza.  “This has an adverse effect on homeowners who do pay their mortgages, and the after-effects of more defaults and more price collapse could be economic catastrophe.”

This model needs some quick-dry crazy glue, which could only be applied in the form of a serious principal reduction program. Banks would take immediate and massive hits to capital which they clearly won’t accept.

So how can we generate some support for housing?

Aside from a principal reduction program, the penalty for those who would strategically default on their mortgage needs to be far more onerous.

The principal reduction would negatively impact bank earnings. Too bad. The banks are currently feeding at the taxpayer trough and would not be here without the bailouts. The individuals who are capable of making their payments need to accept the moral responsibility that is embedded in a contract.

Given the massive violation of moral hazards and breaking of contracts by Uncle Sam, that old man does not have a lot of credibility on that front.

What do we really learn here? Ultimately, the market is the market and efforts to manipulate or support a falling market will only be temporary. The market needs to find the clearing level where private money will purchase properties. That private money will wait while Uncle Sam continues to try to prop the market.

In the meantime, do not expect any meaningful support for housing.

LD






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