Archive for 2010

Anyone who is underwater on their mortgage and struggling with payments is considering strategic default. Many of these people will succumb to mortgage distress whether or not they chose the timing of their default. They are debt zombies. Many others who are underwater and struggling could survive the real estate recession and divert significant family money toward excessive loan payments, but they see the advantages of a lower housing cost, so many of them are choosing to strategically default because it is in their best interest financially to do so.how_to_live Many of those who chose not to strategically default make this choice because they believe making the payment is a moral obligation -- an obligation above and beyond what is written in the contract. Banks are relying on those borrowers motivated by their perceived morality to keep making payments. Unfortunately, there is[READ MORE]

Households likely to deleverage debt with underwater mortgage defaults: Report

by JON PRIOR -- Monday, December 20th, 2010, 11:02 amsticking_it_to_the_man
Bank of America Merrill Lynch analysts said the most likely way households will deleverage roughly $1 trillion in excess debt is through the default of more underwater mortgages. Home prices in the Standard & Poor's/Case-Shiller 20-city index have dropped 28.6% from the peak in the summer of 2006. This has led to more than 10.8 million homes, or 22.5% of the entire U.S. market in negative equity as of the third quarter, according to the analytics firm CoreLogic. And while that percentage is down from the 50 basis points from the previous quarter, negative equity remains the primary factor holding back a recovery in the housing market and the overall recovery. Analysts said the collapse in home prices means the[READ MORE]

If banks could store time in a bottle, they could keep in on the shelf with their worthless paper until the market gives it life again. Unfortunately, rather than storing time in a bottle, the remaining equity capital in our banking system is leaking away through servicing costs like sand in an hourglass. These servicing costs are hidden by amend-extend-pretend until disposition forces recognition of the losses. Astute housing market observers note the amend-extend-pretend policy of banks is untenable in the long term. As some point, keeping fantasy books must intersect with reality. The fantasy had house prices going up until reality and fantasy intersected. I don't believe it can or will work out that way. The weight of the inventory and the incentive to liquidate will have individual banks working against their collective best interest.[READ MORE]

At a basic level, each of us wants the safety and security of an ordinary world of predictable surroundings and routines. The real estate and mortgage world we live in today is a surreal landscape of failed loan programs, ever-tightening credit standards, and uncertainty about the future of real estate prices.Repay_or_no_bonus The success or failure of many loan programs will determine the likelihood of their reappearance in an altered form. Subprime first-mortgage lending will return. The 20% down piggy-back loans and 100% HELOCs are not coming back soon. The second mortgage liens -- the key problem for bank's residential loan portfolios -- are performing very badly, and they will continue to post losses exceeding expectations. However, these loans are performing better than I thought they would because people are choosing to pay these credit lines even if they bail on the first[READ MORE]

When you read trade publications you get a point of view on issues that is often unbiased by the political correctness of the mainstream media. I found the article today in written to interested parties in the homebuilding industry. The article in bold in its statements that the banking cartel is colluding to hold up prices. There is a matter-of-factness about the articles tone that says this activity is just and desirable. I think the bank's behavior sucks.withheld_inventory

Banks holding onto foreclosed homes to keep market stable

Source: San Bernardino County Sun Publication date: December 2, 2010 By Toni Momberger, San Bernardino County Sun, Calif.
Dec. 02--Inventory is low all over the area, and there are frustrated buyers among us. They have saved a 3.5-percent down payment. They have an income and good credit. They want to take advantage of today's low prices and[READ MORE]

Is shadow inventory all in your head? Is it real? Are there really debt zombies roaming the shopping malls spending the money they should be putting toward their mortgage?American Gothic 2008: Foreclosure of America Home ownership in California means you gorge on HELOCs when times are good, and squat in luxury when your creditors cut you off. Its a great system for Californians. They get to spend as they please and pass the bills off to the rest of America in taxpayer bailouts. I see no reason to believe it will not happen again soon.

Welcome to Zombieland: Ladera Ranch, California

By Pat Regnier, assistant managing editor -- December 7, 2010: 4:10 PM ET
ORANGE COUNTY, Calif. (MONEY Magazine) -- Joshua and Irene Vecchione are cleaning the dinner dishes one evening in October when Joshua's cellphone rings. It's Rhea from the Chase collections department,[READ MORE]

In its obsession with home ownership, the government has been ignoring the one group most needed to stabilize housing prices: cashflow investors. Several weeks ago, I asked the question Should Government Mortgage Subsidies Be Offered to Cashflow Investors? Most readers said no. Personally, I would like to see the government get entirely out of the housing market, but as long as they are determined to support prices, perhaps they should look for policies that will be more effective.gold_is_gone

As Shadow Inventory Grows, Time for More Subsidy?

By: Diana Olick -- Monday, 22 Nov 2010
As of the end of August, there were 2.1 million properties either in the foreclosure process or headed for foreclosure, according to CoreLogic. It's come to be known as the "shadow inventory," because it will be coming to market soon, but it's not listed yet. To put that in perspective, there[READ MORE]

Well meaning people are often wrong. The foreclosure process -- essential to the cleansing of consumer debt and the recovery of the housing market -- is very painful for the families that must endure it. Many on the left of the political spectrum are pandering to the masses facing foreclosure and proposing policies that would remove the negative consequence of foreclosure for those who over borrowed. Unfortunately, removing these consequences is the essence of moral hazard: if people don't experience consequences of their foolish actions, they tend to repeat the mistake.

John Taylor: Foreclosures Are the Mortal Enemy to Economic Recovery

Lori Ann LaRocco -- Monday, 29 Nov 2010 -- (edited for brevity)go_to_auction
The foreclosure crisis still divides us into two camps. There are those who believe that foreclosing rapidly on homes subject to defaulted mortgages is vital to clearing the market. Others[READ MORE]

Are you ready to carry your neighbor.make_me_foreclose Some time ago, I wrote about the problems California HOAs are having with delinquent properties the banks do not foreclose on.

The amend-extend-pretend policies of lenders is fraught with unintended consequences. The obvious costs to lenders is lost revenue from squatters who get to stay in their homes without making any payments, but lenders are not the only parties involved who aren't getting paid. Local taxing authorities and Home Owners Associations (HOAs) also are not being paid. The taxes will get paid eventually because property tax obligations survive the foreclosure. Whatever bills the old owners left behind are the responsibility of the new owner. Bills due to HOAs are only paid after mortgage holders are paid in full. Since most delinquent homeowners are underwater, there is no equity left over to pay the HOA bills, and any delinquent amounts are not[READ MORE]

Not long ago I noted, Low Interest Rates Are Not Clearing the Market Inventory. Well, I am not the only one who has noticed. bernanke_forever_blowing_bubblesRichard Fisher, President of the Federal Reserve Bank of Dallas, has also noted that low interest rates will not fix the ailing economy, but super low rates will have many deleterious effects not anticipated by others at the Fed.

Dallas Fed president: Low interest rates won't spark demand

by JACOB GAFFNEY -- Monday, November 8th, 2010, 3:28 pm
The environment of exceedingly low interest rates is great for banks, according to Richard Fisher, President of the Federal Reserve Bank of Dallas, but is doing little to help the overall economy get back on track. "Despite their theoretical promise, reductions in interest rates to Lilliputian levels have not done much thus far to spark loan demand," he told the Association for[READ MORE]

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