Low end in OC is on fire. Multiple bids (10-15) on 250K crap condos. Co-worker can't beat all the cash offers. Nothing but distressed listings, says she.
600k and higher? Not so much. Income requirements, no 8k bonus.
"They exacerbate bank losses, putting pressure on the still fragile financial system."
Holy shit. Are the editors actually implying the banks are foreclosing out of spite, against the interest of their shareholders? Or are they really stupid.
Why doesn't anyone call these 'foreclosure prevention programs' what they are: window dressing. Does anyone really believe that spending $0,075T is going to make a mark on housing when the losses are already something like $1.5T?
It's scary that the government might come in a force a lowering to "mark to market" on principle to those 90 days behind or whatever milestone they use for 2% of home owner population, then watch everyone else that is not underwater get extremely pissed off....when,
had they not try to slow the shoe drop many of these folks would be out of the homes they cant afford. Instead we have trickle up foreclosures starting with the lower value subprime mortgages and the Times has yet to see the fall out from the "prime" loans..
So instead of the government lowering principle, maybe community groups will get stimulus money to give grants to in effect reduce principle and we will never see that money again...
OK, maybe I haven't had enough coffee yet, but the implicit message here seems to be that banks should stop foreclosing, and somehow everything will just get better from there... those darned foreclosures are ruining everything!
Definitely a muddled editorial. There are 4 or 5 elements there, loosely joined, with no real sense of depth or insight to any of them.
and prices will fall, and the seas turn to blood, fire and brimstone...
yogi,
On that point, loss mitigation is still a big bottleneck. you can have banks who just don't want to foreclose, but everything still has to go through the narrow urethra of the loss-mit department and then there's all the seconds, and you're right, they rarely if ever are foreclosing out of spite, simply too much demand, too few experienced people to work through the volume, not good processes and procedures, blah blah blah... the takeaway is that foreclosures will continue to rise.
ICSC-Goldman:
May was a roller coaster for retail sales ending unfortunately, according to ICSC-Goldman's tally, on a negative note, down 0.6 percent for the May 30 week though the year-on-year rate held firm at 0.6 percent. The report estimates year-on-year same-store sales for the full month fell 2.0 percent. The report does not offer a month-to-month reading, unlike Redbook which will be posted at 8:55 ET.
Redbook:
Chain-store sales, helped by warm weather, improved a bit in the May 30 week but were still down a year-on-year 0.1 percent, according to Redbook's same-store sales tally. The key full-month reading against April is down 0.3 percent pointing to a third straight month of declines for Commerce Department data, a result that would make everyone reassess the economic outlook.
oh, and that's assuming you know they have a loss-mit department. Many of the seconds were fly-by night operations with the inflatable shingle to hang out and make second lien loans and the idea of having the overhead of a loss-mit department was not competetive...
And dont forget that apparently the best of the banks are still have a flooded pipeline and are running 6-7 months even before they have a person assigned to start communictions....
.....once they started giving away taxpayer dollars, there was no more closing of the gates. The FedGov runs out of money and more is printed. "Bobby got his, where is mine?" - thinking prevails until the ink for the printing runs out. The FedGov is so caught up in the "game-play", they've forgotten about the stakes.
I know it's possible for a foreclosure to be the wrong economic decision for a bank, at least in the short term (ignoring deterrence) but for the NYT to make a blanket statement to that effect without analysis is absurd.
Story from recent visit of MBA graduates to Asia:
Students were provided the opportunity to meet with head of Hong Kong central bank. A couple of students asked him how fast he could de-peg from the American dollar. He dodged the question 3 times.
Isn't it pretty much instantaneous?
Conclusion from one participant:
a) America is screwed
b) Working overseas is an option
c) Hong Kong much nicer than expected (Thailand not so much)
d) China and Hong Kong have a bright future
e) If America doesn't figure out what to export next, we are screwed... he suggested legalization of maryjane... also green technology.
f) We got into a debate regarding how to get out of CA budget; raising taxes was not an option, neither was BK... he couldn't tell me what the plan was.
Burger King was doing some kind of promotion in its Watertown huts and the marquee in their several parking lots proclaimed -- I swear to God -- "Ask us about our Angry Burger." WTF? Is the rage of lumpen America so repressed now that it can only be expressed in menu items that turn people into hulking four-hundred-pound monsters?
JHK
Four hundred pound monsters with a Buick and a mortgage.
Foreclosures threaten millions of families with financial ruin.
No, it is not foreclosures that threaten millions of families with financial ruin.
It is DEBT threatens millions of families with financial ruin.
Foreclosure gives millions of families a chance to get out from underneath onerous debt.
There will be no recovery until there is a halt in the relentless rise in foreclosures.
Nonsense. There will be no recovery until excess and non-econmic debt is liquidated.
Foreclosures threaten millions of families with financial ruin.
Nonsense. These families are already ruined financially. The sooner they default the better off they will be.
By driving prices down, they sap the wealth of all homeowners.
Nonsense again. No wealth will be destroyed. However, false wealth will indeed be destroyed. Good riddance.
They exacerbate bank losses, putting pressure on the still fragile financial system.
Bank losses are what they are. It's just a matter of who pays - the banks and their shareholders or the taxpayer. The banks losses are due solely to poor loans and business practices. Additionally, The huge and unwarranted bonuses and dividends paid out by banks over the past decade have caused the system to be so fragile.
"Has there been any Op-Ed's or anyone from newspapers government saying maybe lower home prices are good?"
Lower home prices enable people to live on lower incomes. Lower payroll expenses would encourage corporations to grow or maintain employment. We can't allow that. Money has to come from magic perpetual home price appreciation, not ideas, sweat and toil. Toil is old fashioned.
GM has set the precedent- its ok to stiff lenders.
Now that we have established that precedent how does one argue against a homeowner who has seen the value of his/her house drop by 50% walking away from their mortgage.
Related to foreclosure are other pressures on the consumer, specifically, the wherewithal of the middle 60% (the middle 3 quintiles) by HH income, to weather a furlough or reduction in hours, or a wage-cut, or job loss.
And that takes us back to CR's two posts yesterday about consumer savings.
What does David "Rosey" Rosenberg, formerly Merrill Lynch's Chief Economist for North America, mean when he tells clients and CNBC audiences that the US economy will not recover until 1) American HH's reduce their liabilities by $2 Trillion via paying down the debt side of their balance sheet AND 2) they increase their HH savings rate to 8%?
If you're restricting your view to purely theoretical economics, you could say, as some readers did yesterday, that he wants them to save so as to create demand on future production etc, per academic theory.
Or you note that he is a pre-eminent private sector Economists working neither in academia or government, but in the private sector where he conducts proprietary research for paying clients who demand clear English and usage of terms consistent with client’s (non-economists and non-theorists) definitions. From that, you could conclude he has a firm grasp of theory, but more importantly, he understands clients want clear communication using definitions familiar to them, and a context that focuses on the economy of Main Street as well as Wall Street. You could conclude he is confident enough in his skills that he doesn’t need to wrap himself in theory-speak to prove his worth.
I am in the latter camp and I believe that what he is saying (in the 2nd paragraph above) is that financially-viable households are key to the current American economy; sadly, their current levels of household debt continues to expose them to the debilitating effects of Debt Unwind. Paying down debts is the only way in a deleveraging/deflationary environment to reduce exposure to Debt Unwind. Likewise, having a cushion of HH savings (money sitting in an account) also increases the viability of households in environments where access to EZ credit has been curtailed while threats to income (jobs) persist.
I admired David Rosenberg's willingness (and ability) to forego academic theoretical-speak and to be candid in his newsletters to Merrill clients. His willingness (and ability) to adapt his writing/speaking to definitions that give priority to those definitions and concepts as practiced by his paying clients should be an inspiration to folks.
I for one will follow his leadership in willingness to define ‘savings’ and ‘paying down debt’ in manners consistent to non-economists, non-theoreticians, and non-govt bureau-wonks. For those who prefer to demonstrate their grasp of theoretical economics (esp for non-Debt Unwind economies), you will enjoy Marc Thomas, Academic Economist at U of Oregon and his blog, Economist View, linked at CR’s site. Thanks to that web link, I’ve spent time there; believe me, you will have a blast if that’s what floats-your-boat.
To what degree can we communication when parties insist on different definitions? I don’t know, I guess we’ll find out in blogdom what life was like at the fabled Tower of Babel.
Very nice topic for today. Foreclosures are making it easier to invest now, I recently came back from a business trip from Latvia and condos in inner city are going for 25K ? they are 250K+ living spaces its crazy that all around the world people are feeling the plunge. As far as finding work else where...I agree with that statement. My friend is currently working in Dubai and loves it. A lot of job opportunities overseas!
"Clearly the US is developing a culture that is hostile to entrepreneurship and economic growth/freedom more generally."
Lots of former SBA employees now have lots of freedom after being laid-off during the multiple staff reductions during the last 10 years. They'd even be free to start a business if we have any money left to lend after the bailouts.
Foreclosures will abate, but only when we manage to return to an economy that creates jobs.
It's encouraging to see that the NYT realizes that the subprime, option ARM, alt-A phase of foreclosures is passing and the truly serious time has begun. No plan based on lowering payments can save a family when breadwinners are out of work in places like Michigan and Ohio where good jobs are scarce.
But the Obama modification plan shouldn't be dismissed. No one, including Obama, said it would be a cure-all. If it helps 4-5 million people who got in over their heads, it will keep 4-5 million foreclosures off the market and that's part of the solution.
I expect a brain-drain from the US. Those who are skilled, multi-lingual, flexible financially, entrepreneurial will likely leave as long as there is a destination to go.
Granted people are not being lined up against walls and shot, but from a business perspective, how sure are you that your labor will be valued when the system here makes it clear it cares little for hard work, and very much about rewarding non-productive endeavors and venal behaviors--simply because not doing so destabalizes the only constituency that those in power care about--themselves.
Join me in writing that as a rebuttal from a NYT reader. I've been doing so for months; more of our contrarian voices need to be heard/read in print.
The NYT and NPR are heavily driven by shared memes and media-narratives, esp. when facing deadlines. They will keep wordprocessing that line of 'reasoning' on foreclosures and households until someone pulls them asside and slaps them out of their communal trance and chanting. I say this as a Progressive and as the suppossed 'target audience' of NYT and NPR.
SCook, have you looked at the Re-Default rates from participants in the existing state, federal and private-sector mod initiatives?
Joblessness, furloughs, and hours-cuts and wage-givebacks are undercutting all such projections of 'help', drop 2-3 zeros from those 'help' projections in some cases to get a better forecast.
"SCook, have you looked at the Re-Default rates from participants in the existing state, federal and private-sector mod initiatives?"
I have looked at redefault rates for many loss mit programs, the one thing they all have in common is they don't work - redefault rates are generally in the 60 - 70% range.
Nothing will work IMHO besides principal forgiveness. Haven't seen a lot of evidence of the effectiveness myself, but word from the vulture funds who have been doing it is they are performing well after the foregiveness.
"Now that we have established that precedent how does one argue against a homeowner who has seen the value of his/her house drop by 50% walking away from their mortgage."
Once again, the NYT article doesn't address the elephant in the room. The need for universal, single payer health coverage . It is the 21st Century and the US is in last place spending more on corporate profits and less on quality health care.
CR---What's your most optimistic guess as to when real estate prices will stabilize? I believe that Treasuries are anticipating hefty inflation, and that could be the impetus to stop foreclosures. Also, instead of inflation decreasing lender assets, this time the banks will be cheering it on.
SCook (homepage, profile) wrote on Tue, 6/2/2009 - 9:39 am
\
Actually Alt -A , option, etc has not even "started" ... Only subprime has come and gone. re Credit Suisse chart
BO's plan wanted to help 4-5 million, and helped 1 out of 65. They have modified the plan but still not helping people mainly because only a few even still, can qualify, simply stated, most that are in trouble are so because they got into something the Joneses around them did and they tried successfully...
very few because they have lost their jobs, granted there are some that lost jobs that would have failed eventually...
You cant ask banks to adjust principle to current market when many of these upcoming prime mortgages happened on the high end peak...
then you would be asking for them tto reduce principle by 40-50% maybe...especially in the 4 biggest hit MSA's..
Then if they reduceed then that will have the effect of reducing others around them to be value reduced, when now we can still kind of look at the loss from house to house instead of whole neighborhoods/cities/counties/MSA's..
That would exasherbate the problem...
We need someone to bite the bullet and give the thumbs down and let the FC's happen.... nothing wrong with apartment living.
Look what is still hanging in there. Might want to rethink relocating...
The Geneva-based agency, sometime in the next 10 days, will declare the first flu pandemic in 41 years, said the people, who spoke on condition of anonymity because the WHO’s deliberations are private. WHO is using the time before the announcement to help member states prepare.
“We held a series of consultations with public health officials and academics around the world to understand their concerns and get their advice about moving to level 6,” said Dick Thompson, a WHO spokesman in Geneva. “We are not at phase 6. We’re just exploring the issues associated with announcing a pandemic.”
[The key full-month reading against April is down 0.3 percent pointing to a third straight month of declines for Commerce Department data, a result that would make everyone reassess the economic outlook]
HA! Green shoots as far as they eye can see. Don't let a silly anecdotal report interfere with the BUY-THE-DIPS market. BULLISH!
This point about inflation solving the foreclosure problem is really worth arguing about--because the meme about inflating away your debts only works for that rare class of individuals who have jobs. In a massively inflationary environment you get elevated unemployment--you understand right? We're already elevated. Trying to engineer a job recovery while your creating inflation and expecting jobs to be rapidly created in the middle of an inflation storm will not work out. So you'll get elevated wages for some, stagnant wages for others, and a big pool of skilled and unskilled labor without jobs.
The system is going to be tearing itself apart, whether or not the people in the system do this remains to be seen.
"Even with the assumption of higher rates the loan never hits its 125% cap. The loan currently has accrued about $40,000 of negative amortization. By 2014 it would accrue another $45,000, making the final balance $585,388 (115% of the original loan). In order to get the loan to hit the 125% cap by 2012 the accrual rate would need to jump today to 10% and say there for the next 3 years.*
Of course, none of this is to say that Wells Fargo is out of the woods. They are essentially stashing away on their balance sheet tens of billions of neg-am loans that will recast into 20-year fixed rate mortgages in 2014 and 2015. Talk about a payment shock. (Although, it is important to note that the minimum payment automatically increases by 7.5% a year. If rates were to stay low this could mean that borrowers would eventually start paying more than their interest only payment and paying down their loans. My guess though is that these automatic increases will get people walking away from their homes before the recast date. Who wants to pay $3000 a month on a home that's underwater? Any way you look at it, it’s a mess.)"
Wow!.... So will go into the next election cycle...hmmmmm
10's of BILLIONS at one firm that passed the stress test, makes me question the stress test now, even the more adverse...
bh--what ypu say is true if we inflate more than most other countries--but if we don't--jobs could get created. Might makes right--we have the economic and military might to manipulate social, political, and economic paths around the globe. We sometimes forget that it's political economics.
I think an essential first step is determination of responsibility for what has happened. A "no-fault" approach that bails out everybody will not be feasible. Specifically, there needs to be a serious inquiry, with plenty of resources for aggressive investigation, of predatory lending and fraudulent securitization.
ac - I gotta call you out on this: "Clearly the US is developing a culture that is hostile to entrepreneurship and economic growth/freedom more generally." You are basically saying that during the boom years, everybody was making money? All was fine until the crash? Well we know this to be false, they were living on credit and falisfying incomes to get ARMs.
We have had problems for years now - and the problem is not that entrepreneurs pay too much in taxes, the problem is that good middle class jobs are vanishing. The main problem is noted in the article: "And until more Americans can find a good job and a steady paycheck, the number of foreclosures will continue to rise."
If we are going to solve the problem, we need to provide a decent living wage to the middle class - not promote policies which force labor costs down in a race to the bottom to compete with the 1 dollar a day factory workers in China. Personally I think we need to reexamine our trade policy and China's pegged currency exchange rates, but I really don't think the problem is that all of a sudden the democrats are in power and we are hostile to entrepreneurship.
I just read the editorial. Enough to make a person want to vomit. Examples:
"This page has long argued that a robust anti-foreclosure plan should directly address the plight of underwater homeowners by reducing the loans’ principal balance. That would restore some equity to borrowers — and give them a further incentive to hold on to their homes — in addition to lowering monthly payments. The mortgage industry has resisted this approach, and the Obama plan does not emphasize it. "
"With joblessness rising, lower monthly payments could quickly become unaffordable for many Americans. In a recent report, researchers at the Federal Reserve Bank of Boston argued that unemployment is driving foreclosures and to make a difference, anti-foreclosure policy should focus on helping unemployed homeowners. The report suggests a temporary program of loans or grants to help them pay their mortgages while they look for another job. "
So, lowering a borrower's monthly loan payment isn't enough. The Times wants us taxpayers to subsidize (more like "sobsidize") the borrower's loan principal, and then, on the other hand, give the borrower a "temporary" loan or grant to help him pay his mortgage. Brilliant! The taxpayers are to pay off a portion of the borrower's loan, and then give to him a new loan to tide him over, or, better yet for the borrower, the taxpayers will simply give to the borrower money (a "grant") so he can pay his mortgage. Where do I sign up? (No moral hazard here.)
Between 1998 and 2008, RE almost quintupled in some markets. While I won't call that lunacy, it stretches the imagination to think that home asset values could soar so quickly and remain there. The fact that they're now (in 2009) roughly double the 1998 valuations says that things are now probably where they should be and the RE assets will be back where they were in 2018 or so, sans another hyper-inflated bubble that we could truly do without.
Therefore, all of these foreclosures are the necessary and inevitable result of an asset price bubble and banks will ultimately bear the burden, unless they fail because of it, in which case, taxpayers will bear the burden.
Am currently living in Singapore for the 2nd time (total of 7 years now; not working--I'm the trailng spouse). But there seem to be many advantages to life here:
1. SAFE
2. Gov't, while not exactly an American version of democracy, is normally extremely efficient and UNcorrupt.
3. Seems to have good ties to China, so should pull out of the recession long before US.
4. I've never seen the spitting police, but who really needs to spit in public anyway?
5. Food is awesome and you can get a fab meal for S$3-$300 (and sometimes the $3 is better!) which is about US $2-$200 (assuming current rates)
6. Moving your cash here is probably a very good move.
7. Arts culture is greatly improved and still improving.
8. Great airport (one of the world's best) for easy access to Asia and the world.
9. You can go to Bali for the weekend and not have to be a crown prince.
10. While often quite accented to our ears, English is the dominant language and THE business language, but if you can speak Mandarin, too, even better!
first?
~ Dancing Irish jig~
Uncharted territory.
deleted
NYT seems to have the horse before the cart. Same old same old.
Low end in OC is on fire. Multiple bids (10-15) on 250K crap condos. Co-worker can't beat all the cash offers. Nothing but distressed listings, says she.
600k and higher? Not so much. Income requirements, no 8k bonus.
"They exacerbate bank losses, putting pressure on the still fragile financial system."
Holy shit. Are the editors actually implying the banks are foreclosing out of spite, against the interest of their shareholders? Or are they really stupid.
Will they begin foreclosing on mortgaged grave sites or evict the current occupants?
Why doesn't anyone call these 'foreclosure prevention programs' what they are: window dressing. Does anyone really believe that spending $0,075T is going to make a mark on housing when the losses are already something like $1.5T?
Seriously though,
It's scary that the government might come in a force a lowering to "mark to market" on principle to those 90 days behind or whatever milestone they use for 2% of home owner population, then watch everyone else that is not underwater get extremely pissed off....when,
had they not try to slow the shoe drop many of these folks would be out of the homes they cant afford. Instead we have trickle up foreclosures starting with the lower value subprime mortgages and the Times has yet to see the fall out from the "prime" loans..
So instead of the government lowering principle, maybe community groups will get stimulus money to give grants to in effect reduce principle and we will never see that money again...
OK, maybe I haven't had enough coffee yet, but the implicit message here seems to be that banks should stop foreclosing, and somehow everything will just get better from there... those darned foreclosures are ruining everything!
Definitely a muddled editorial. There are 4 or 5 elements there, loosely joined, with no real sense of depth or insight to any of them.
"NYT seems to have the horse before the cart."
This seems like a pretty fat strawman editorial.
and prices will fall, and the seas turn to blood, fire and brimstone...
yogi,
On that point, loss mitigation is still a big bottleneck. you can have banks who just don't want to foreclose, but everything still has to go through the narrow urethra of the loss-mit department and then there's all the seconds, and you're right, they rarely if ever are foreclosing out of spite, simply too much demand, too few experienced people to work through the volume, not good processes and procedures, blah blah blah... the takeaway is that foreclosures will continue to rise.
--bh
Weekly Chain Stores:
ICSC-Goldman:
May was a roller coaster for retail sales ending unfortunately, according to ICSC-Goldman's tally, on a negative note, down 0.6 percent for the May 30 week though the year-on-year rate held firm at 0.6 percent. The report estimates year-on-year same-store sales for the full month fell 2.0 percent. The report does not offer a month-to-month reading, unlike Redbook which will be posted at 8:55 ET.
Redbook:
Chain-store sales, helped by warm weather, improved a bit in the May 30 week but were still down a year-on-year 0.1 percent, according to Redbook's same-store sales tally. The key full-month reading against April is down 0.3 percent pointing to a third straight month of declines for Commerce Department data, a result that would make everyone reassess the economic outlook.
oh, and that's assuming you know they have a loss-mit department. Many of the seconds were fly-by night operations with the inflatable shingle to hang out and make second lien loans and the idea of having the overhead of a loss-mit department was not competetive...
--bh
bh,
And dont forget that apparently the best of the banks are still have a flooded pipeline and are running 6-7 months even before they have a person assigned to start communictions....
Why would anyone with a grossly underwater mortgage pay a dime, even if they could? Unless your job was dependent on your credit rating, I guess.
.....once they started giving away taxpayer dollars, there was no more closing of the gates. The FedGov runs out of money and more is printed. "Bobby got his, where is mine?" - thinking prevails until the ink for the printing runs out. The FedGov is so caught up in the "game-play", they've forgotten about the stakes.
ac,
Action Item #1 today is "reassess the economic outlook".
As proof of completing this deliverable, I will note that the home-front victory-spend garden is in full vegetable and fruiting glory.
--bh
I know it's possible for a foreclosure to be the wrong economic decision for a bank, at least in the short term (ignoring deterrence) but for the NYT to make a blanket statement to that effect without analysis is absurd.
Story from recent visit of MBA graduates to Asia:
Students were provided the opportunity to meet with head of Hong Kong central bank. A couple of students asked him how fast he could de-peg from the American dollar. He dodged the question 3 times.
Isn't it pretty much instantaneous?
Conclusion from one participant:
a) America is screwed
b) Working overseas is an option
c) Hong Kong much nicer than expected (Thailand not so much)
d) China and Hong Kong have a bright future
e) If America doesn't figure out what to export next, we are screwed... he suggested legalization of maryjane... also green technology.
f) We got into a debate regarding how to get out of CA budget; raising taxes was not an option, neither was BK... he couldn't tell me what the plan was.
Has there been any Op-Ed's or anyone from newspapers government saying maybe lower home prices are good?
The FedGov is so caught up in the "game-play", they've forgotten about the stakes.
Or don't care, which could be worse... forgotten implies ignorance, don't care means deep poo-poo.
Burger King was doing some kind of promotion in its Watertown huts and the marquee in their several parking lots proclaimed -- I swear to God -- "Ask us about our Angry Burger." WTF? Is the rage of lumpen America so repressed now that it can only be expressed in menu items that turn people into hulking four-hundred-pound monsters?
JHK
Four hundred pound monsters with a Buick and a mortgage.
Foreclosures threaten millions of families with financial ruin.
No, it is not foreclosures that threaten millions of families with financial ruin.
It is DEBT threatens millions of families with financial ruin.
Foreclosure gives millions of families a chance to get out from underneath onerous debt.
Conclusion from one participant:
a) America is screwed
b) Working overseas is an option
c) Hong Kong much nicer than expected (Thailand not so much)
How about Singapore? I have a friend who seems to think highly of it but they don't let you spit on the ground.
Clearly the US is developing a culture that is hostile to entrepreneurship and economic growth/freedom more generally.
It may be time for those who wish to do something with their lives to look elsewhere.
This article is total bs.
There will be no recovery until there is a halt in the relentless rise in foreclosures.
Nonsense. There will be no recovery until excess and non-econmic debt is liquidated.
Foreclosures threaten millions of families with financial ruin.
Nonsense. These families are already ruined financially. The sooner they default the better off they will be.
By driving prices down, they sap the wealth of all homeowners.
Nonsense again. No wealth will be destroyed. However, false wealth will indeed be destroyed. Good riddance.
They exacerbate bank losses, putting pressure on the still fragile financial system.
Bank losses are what they are. It's just a matter of who pays - the banks and their shareholders or the taxpayer. The banks losses are due solely to poor loans and business practices. Additionally, The huge and unwarranted bonuses and dividends paid out by banks over the past decade have caused the system to be so fragile.
There is an end in sight - (2011 Q3, maybe Q4). It's just not as near as people wish it was.
Fiduciary Doodie - I think you meant principal, not principle. Have I ever told you how much I like your handle?
Shnaps,
Thanks for the engrish class, i am so busy watching my use of " your /you're "
Thanks for the compliment... maybe i will start a Handle Godaddy and sell witty handles.... Wonder if Danica is available?
"Has there been any Op-Ed's or anyone from newspapers government saying maybe lower home prices are good?"
Lower home prices enable people to live on lower incomes. Lower payroll expenses would encourage corporations to grow or maintain employment. We can't allow that. Money has to come from magic perpetual home price appreciation, not ideas, sweat and toil. Toil is old fashioned.
GM has set the precedent- its ok to stiff lenders.
Now that we have established that precedent how does one argue against a homeowner who has seen the value of his/her house drop by 50% walking away from their mortgage.
Related to foreclosure are other pressures on the consumer, specifically, the wherewithal of the middle 60% (the middle 3 quintiles) by HH income, to weather a furlough or reduction in hours, or a wage-cut, or job loss.
And that takes us back to CR's two posts yesterday about consumer savings.
What does David "Rosey" Rosenberg, formerly Merrill Lynch's Chief Economist for North America, mean when he tells clients and CNBC audiences that the US economy will not recover until 1) American HH's reduce their liabilities by $2 Trillion via paying down the debt side of their balance sheet AND 2) they increase their HH savings rate to 8%?
If you're restricting your view to purely theoretical economics, you could say, as some readers did yesterday, that he wants them to save so as to create demand on future production etc, per academic theory.
Or you note that he is a pre-eminent private sector Economists working neither in academia or government, but in the private sector where he conducts proprietary research for paying clients who demand clear English and usage of terms consistent with client’s (non-economists and non-theorists) definitions. From that, you could conclude he has a firm grasp of theory, but more importantly, he understands clients want clear communication using definitions familiar to them, and a context that focuses on the economy of Main Street as well as Wall Street. You could conclude he is confident enough in his skills that he doesn’t need to wrap himself in theory-speak to prove his worth.
I am in the latter camp and I believe that what he is saying (in the 2nd paragraph above) is that financially-viable households are key to the current American economy; sadly, their current levels of household debt continues to expose them to the debilitating effects of Debt Unwind. Paying down debts is the only way in a deleveraging/deflationary environment to reduce exposure to Debt Unwind. Likewise, having a cushion of HH savings (money sitting in an account) also increases the viability of households in environments where access to EZ credit has been curtailed while threats to income (jobs) persist.
I admired David Rosenberg's willingness (and ability) to forego academic theoretical-speak and to be candid in his newsletters to Merrill clients. His willingness (and ability) to adapt his writing/speaking to definitions that give priority to those definitions and concepts as practiced by his paying clients should be an inspiration to folks.
I for one will follow his leadership in willingness to define ‘savings’ and ‘paying down debt’ in manners consistent to non-economists, non-theoreticians, and non-govt bureau-wonks. For those who prefer to demonstrate their grasp of theoretical economics (esp for non-Debt Unwind economies), you will enjoy Marc Thomas, Academic Economist at U of Oregon and his blog, Economist View, linked at CR’s site. Thanks to that web link, I’ve spent time there; believe me, you will have a blast if that’s what floats-your-boat.
To what degree can we communication when parties insist on different definitions? I don’t know, I guess we’ll find out in blogdom what life was like at the fabled Tower of Babel.
Very nice topic for today. Foreclosures are making it easier to invest now, I recently came back from a business trip from Latvia and condos in inner city are going for 25K ? they are 250K+ living spaces its crazy that all around the world people are feeling the plunge. As far as finding work else where...I agree with that statement. My friend is currently working in Dubai and loves it. A lot of job opportunities overseas!
Best regard,
Michael Fridman
The “MAN” Experience
Tough to pay the mortgage when you don't have any income.
"Clearly the US is developing a culture that is hostile to entrepreneurship and economic growth/freedom more generally."
Lots of former SBA employees now have lots of freedom after being laid-off during the multiple staff reductions during the last 10 years. They'd even be free to start a business if we have any money left to lend after the bailouts.
Foreclosures will abate, but only when we manage to return to an economy that creates jobs.
It's encouraging to see that the NYT realizes that the subprime, option ARM, alt-A phase of foreclosures is passing and the truly serious time has begun. No plan based on lowering payments can save a family when breadwinners are out of work in places like Michigan and Ohio where good jobs are scarce.
But the Obama modification plan shouldn't be dismissed. No one, including Obama, said it would be a cure-all. If it helps 4-5 million people who got in over their heads, it will keep 4-5 million foreclosures off the market and that's part of the solution.
ac,
I expect a brain-drain from the US. Those who are skilled, multi-lingual, flexible financially, entrepreneurial will likely leave as long as there is a destination to go.
Granted people are not being lined up against walls and shot, but from a business perspective, how sure are you that your labor will be valued when the system here makes it clear it cares little for hard work, and very much about rewarding non-productive endeavors and venal behaviors--simply because not doing so destabalizes the only constituency that those in power care about--themselves.
--bh
All great points, Angry Saver 9:28am.
Join me in writing that as a rebuttal from a NYT reader. I've been doing so for months; more of our contrarian voices need to be heard/read in print.
The NYT and NPR are heavily driven by shared memes and media-narratives, esp. when facing deadlines. They will keep wordprocessing that line of 'reasoning' on foreclosures and households until someone pulls them asside and slaps them out of their communal trance and chanting. I say this as a Progressive and as the suppossed 'target audience' of NYT and NPR.
SCook, have you looked at the Re-Default rates from participants in the existing state, federal and private-sector mod initiatives?
Joblessness, furloughs, and hours-cuts and wage-givebacks are undercutting all such projections of 'help', drop 2-3 zeros from those 'help' projections in some cases to get a better forecast.
Avl Dao,
I believe the figure I read was 70% re-dfault rate. 70 fricking percent.
/unfurls "Mission Accomplished" banner
--bh
Hummer is being sold and they are not telling who is the buyer.
Yahoo! 404 - Page Not Found
Bet you it is Chinese or Middle Eastern buyer.
Reset Chat from Credit Suisse has a Major Error
Healdsburg Housing Bubble: Reset Chart from Credit Suisse has a Major Error
"SCook, have you looked at the Re-Default rates from participants in the existing state, federal and private-sector mod initiatives?"
I have looked at redefault rates for many loss mit programs, the one thing they all have in common is they don't work - redefault rates are generally in the 60 - 70% range.
Nothing will work IMHO besides principal forgiveness. Haven't seen a lot of evidence of the effectiveness myself, but word from the vulture funds who have been doing it is they are performing well after the foregiveness.
hey, no problemo, i might have to foreclose too! at least i dont feel alone!
"Now that we have established that precedent how does one argue against a homeowner who has seen the value of his/her house drop by 50% walking away from their mortgage."
On a non-recourse loan? I don't.
Once again, the NYT article doesn't address the elephant in the room. The need for universal, single payer health coverage . It is the 21st Century and the US is in last place spending more on corporate profits and less on quality health care.
CR---What's your most optimistic guess as to when real estate prices will stabilize? I believe that Treasuries are anticipating hefty inflation, and that could be the impetus to stop foreclosures. Also, instead of inflation decreasing lender assets, this time the banks will be cheering it on.
SCook (homepage, profile) wrote on Tue, 6/2/2009 - 9:39 am
\
Actually Alt -A , option, etc has not even "started" ... Only subprime has come and gone. re Credit Suisse chart
BO's plan wanted to help 4-5 million, and helped 1 out of 65. They have modified the plan but still not helping people mainly because only a few even still, can qualify, simply stated, most that are in trouble are so because they got into something the Joneses around them did and they tried successfully...
very few because they have lost their jobs, granted there are some that lost jobs that would have failed eventually...
You cant ask banks to adjust principle to current market when many of these upcoming prime mortgages happened on the high end peak...
then you would be asking for them tto reduce principle by 40-50% maybe...especially in the 4 biggest hit MSA's..
Then if they reduceed then that will have the effect of reducing others around them to be value reduced, when now we can still kind of look at the loss from house to house instead of whole neighborhoods/cities/counties/MSA's..
That would exasherbate the problem...
We need someone to bite the bullet and give the thumbs down and let the FC's happen.... nothing wrong with apartment living.
This editorial pisses me off. Its blatantly obvious it was written by some banking lobbyist.
Look what is still hanging in there. Might want to rethink relocating...
The Geneva-based agency, sometime in the next 10 days, will declare the first flu pandemic in 41 years, said the people, who spoke on condition of anonymity because the WHO’s deliberations are private. WHO is using the time before the announcement to help member states prepare.
“We held a series of consultations with public health officials and academics around the world to understand their concerns and get their advice about moving to level 6,” said Dick Thompson, a WHO spokesman in Geneva. “We are not at phase 6. We’re just exploring the issues associated with announcing a pandemic.”
@Tim,
Or the U.S. military.
Doubt it. What do they need Ipod Connectivity for?
[The key full-month reading against April is down 0.3 percent pointing to a third straight month of declines for Commerce Department data, a result that would make everyone reassess the economic outlook]
HA! Green shoots as far as they eye can see. Don't let a silly anecdotal report interfere with the BUY-THE-DIPS market. BULLISH!
WHAM! WHAM! WHAM!
ohhh, my head....
Hard work, will get you nutin but a heart attack at 50......
Buying the Hummer brand and not telling anybody who you are ....well that's smart work!
Who really needs Hummers? (keep it clean)
Mel,
This point about inflation solving the foreclosure problem is really worth arguing about--because the meme about inflating away your debts only works for that rare class of individuals who have jobs. In a massively inflationary environment you get elevated unemployment--you understand right? We're already elevated. Trying to engineer a job recovery while your creating inflation and expecting jobs to be rapidly created in the middle of an inflation storm will not work out. So you'll get elevated wages for some, stagnant wages for others, and a big pool of skilled and unskilled labor without jobs.
The system is going to be tearing itself apart, whether or not the people in the system do this remains to be seen.
--bh
TBT growing green shoots.
pending home sales upside surprise... crashing to the moon
@bearly
June will be more of the same. May couldn't beat april even with an extra day - and june has one less day than may.
Oil and treasury yields rocketing on pending home sales data.
"Even with the assumption of higher rates the loan never hits its 125% cap. The loan currently has accrued about $40,000 of negative amortization. By 2014 it would accrue another $45,000, making the final balance $585,388 (115% of the original loan). In order to get the loan to hit the 125% cap by 2012 the accrual rate would need to jump today to 10% and say there for the next 3 years.*
Of course, none of this is to say that Wells Fargo is out of the woods. They are essentially stashing away on their balance sheet tens of billions of neg-am loans that will recast into 20-year fixed rate mortgages in 2014 and 2015. Talk about a payment shock. (Although, it is important to note that the minimum payment automatically increases by 7.5% a year. If rates were to stay low this could mean that borrowers would eventually start paying more than their interest only payment and paying down their loans. My guess though is that these automatic increases will get people walking away from their homes before the recast date. Who wants to pay $3000 a month on a home that's underwater? Any way you look at it, it’s a mess.)"
Wow!.... So will go into the next election cycle...hmmmmm
10's of BILLIONS at one firm that passed the stress test, makes me question the stress test now, even the more adverse...
bh--what ypu say is true if we inflate more than most other countries--but if we don't--jobs could get created. Might makes right--we have the economic and military might to manipulate social, political, and economic paths around the globe. We sometimes forget that it's political economics.
I think an essential first step is determination of responsibility for what has happened. A "no-fault" approach that bails out everybody will not be feasible. Specifically, there needs to be a serious inquiry, with plenty of resources for aggressive investigation, of predatory lending and fraudulent securitization.
Good News ! Your payments are only 700$ a month.
Fine Print: Takes 600000000000000000000 years to pay off the mortgage
remember two years ago when we were debating whether people would even remotely consider "jingle mail"? How quaint.
i dont know anything about working oversea's but i have read some really creepy things about dubai.....just a thought that is alll...thankyou bye
"Low end in OC is on fire. Multiple bids (10-15) on 250K crap condos"
Knife catchers, all. Using FHA 3.5% down plus HOA dues, plus property taxes, you could rent the same for $500+ per month less.
ac - I gotta call you out on this: "Clearly the US is developing a culture that is hostile to entrepreneurship and economic growth/freedom more generally." You are basically saying that during the boom years, everybody was making money? All was fine until the crash? Well we know this to be false, they were living on credit and falisfying incomes to get ARMs.
We have had problems for years now - and the problem is not that entrepreneurs pay too much in taxes, the problem is that good middle class jobs are vanishing. The main problem is noted in the article: "And until more Americans can find a good job and a steady paycheck, the number of foreclosures will continue to rise."
If we are going to solve the problem, we need to provide a decent living wage to the middle class - not promote policies which force labor costs down in a race to the bottom to compete with the 1 dollar a day factory workers in China. Personally I think we need to reexamine our trade policy and China's pegged currency exchange rates, but I really don't think the problem is that all of a sudden the democrats are in power and we are hostile to entrepreneurship.
I just read the editorial. Enough to make a person want to vomit. Examples:
So, lowering a borrower's monthly loan payment isn't enough. The Times wants us taxpayers to subsidize (more like "sobsidize") the borrower's loan principal, and then, on the other hand, give the borrower a "temporary" loan or grant to help him pay his mortgage. Brilliant! The taxpayers are to pay off a portion of the borrower's loan, and then give to him a new loan to tide him over, or, better yet for the borrower, the taxpayers will simply give to the borrower money (a "grant") so he can pay his mortgage. Where do I sign up? (No moral hazard here.)
Between 1998 and 2008, RE almost quintupled in some markets. While I won't call that lunacy, it stretches the imagination to think that home asset values could soar so quickly and remain there. The fact that they're now (in 2009) roughly double the 1998 valuations says that things are now probably where they should be and the RE assets will be back where they were in 2018 or so, sans another hyper-inflated bubble that we could truly do without.
Therefore, all of these foreclosures are the necessary and inevitable result of an asset price bubble and banks will ultimately bear the burden, unless they fail because of it, in which case, taxpayers will bear the burden.
ac, YSLP,
Am currently living in Singapore for the 2nd time (total of 7 years now; not working--I'm the trailng spouse). But there seem to be many advantages to life here:
1. SAFE
2. Gov't, while not exactly an American version of democracy, is normally extremely efficient and UNcorrupt.
3. Seems to have good ties to China, so should pull out of the recession long before US.
4. I've never seen the spitting police, but who really needs to spit in public anyway?
5. Food is awesome and you can get a fab meal for S$3-$300 (and sometimes the $3 is better!) which is about US $2-$200 (assuming current rates)
6. Moving your cash here is probably a very good move.
7. Arts culture is greatly improved and still improving.
8. Great airport (one of the world's best) for easy access to Asia and the world.
9. You can go to Bali for the weekend and not have to be a crown prince.
10. While often quite accented to our ears, English is the dominant language and THE business language, but if you can speak Mandarin, too, even better!